Friday, September 30, 2011

The Best and Worst of The Quarter

On the last day of the quarter below is a list of the best and worst performing S&P 500 stocks quarter to date.  The S&P is down 12.9% for the quarter with about two hours left in the trading day.

25 Best

25 Worst

Thursday, September 29, 2011

A Tough Mo-rning for the Mo

Despite the Dow being up 150 pts as I write, one segment of the market that's not on board with the rally are consumer momentum stocks, which are down almost across the board--many significantly so:

NFLX -8.7%
AMZN -2.33%
LULU -3.2%
CMG -2.2%
PCLN -4.5%
GMCR -5.5%
FOSL -10%
DECK -4.3%
PNRA -0.5%

NFLX Still at 30x Earnings

Despite a 60% drop from it's $300 high, NFLX is still trading at 30x earnings.  How low can it go?

Wednesday, September 28, 2011

John Paulson Top 10 Holdings

There was an article in the Journal today about hedge fund competitors of John Paulson preparing to capitalize on Paulson's poor performance by gaming his possible liquidations.  Below are the top 10 holdings of Paulson's funds as of the end of June.  Some have suggested that this could be the cause of the recent weakness in gold--unlikely but an interesting hypothesis.

Tuesday, September 27, 2011

YTD Sector Performance

The S&P 500 is down 5.5% YTD including today's rally.  Perhaps not too surprisingly "defensive" sectors are faring the best in the negative environment.  Utilities are the strongest performers YTD followed by Consumer Staples and Healthcare.  Financials have been the worst performers while Energy, which was the best performing sector by a wide margin earlier in the year has been hit hard by recession fears.

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Dreamliner Sets off on Maiden Voyage!

Bon Voyage!

Oops, wrong picture...

Onward and upward!

4th Time's the Charm?

The S&P 500 has now bounced off of 1125 four times.  Is this the bounce that finally leads to a breakout?

Monday, September 26, 2011

Gold Near Key Support

Last month I pointed out how Gold has a tendency to spike and then move sideways back toward the 200 day moving average.  After moving sideways for a bit gold has taken a big tumble, but in the context of the run it had before that point, there hasn't been too much damage to the chart from a technical standpoint.  A big test for gold is approaching though as the trend line that has held for almost 3 year is challenged.

Friday, September 23, 2011

Household Net Worth at 1989 Levels (In Gold)

Last week, the Fed released its flow of funds report, which provides the most comprehensive view of asset and debt holdings within the US economy.  One of the more important tables included is the one which details the balance sheet of the aggregate US consumer, presented below.

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The data shows net worth fell in 2Q11 from $58.6T to $58.4T.  Considering that US consumers hold about 32% of their net worth in the equity markets, it looks like Q3 will show a further contraction in net worth.  Below is a chart showing the evolution of consumer net worth since 1995.  Consumers are not back to the peak realized in 2007, but according to the data the US consumer is wealthier today than he or she was at the turn of the century.

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The Fed presents this data in nominal terms though.  Adjusted for inflation using CPI, household net worth tells a slightly different story.  By this measure, American consumers are no wealthier than than they were in 1999.

However using a less mainstream measure of inflation (gold), the American consumer is actually much poorer today than he or she was in 1999.  Measured in ounces of gold, the US consumer has the same net worth as he or she did in 1989.

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S&P 500 Negative Y/Y

Following yesterday's rout, the S&P 500 has turned negative on a year over year basis.  It's been quite a ride since last time this year.

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Wednesday, September 21, 2011

Head and Shoulders (Knees and Toes)

Besides the death cross, another technical formation that tends to get much media love is the head and shoulders pattern.  It seems that we have just such a pattern forming today.  Aside from the fact that 1125 represents a resistance level that we've tested and held several times, now it's the market's neckline--a double whammy!  Let's hope we don't break that level.

30 Year Seasonality

Despite the announcement of operation twist today, if recent seasonality holds, rates may be more likely to move higher rather than lower in the coming months.  In '09 and '10 rates moved in almost the exact same pattern that they have moved so far in '11.  Rates rose into the spring, peaking around April/May before falling hard through the summer.  The bond rallies ended in both years right around the beginning of October.  Will 2011 make it three years in a row?

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Regional Bank ETF Makes New Low

Even though the S&P500 is still 66 points above the annual low set in August, regional banks are making new lows.  The regional bank ETF, KRE hit a new low today.  Unlike the KBE which includes the larger  money center banks, it's harder to blame the KRE's new low on exposure to international pressures like Greece.

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Wake Me Up When the 30 Yr is at 2.60%

With operation twist, the long bond is up about 3 points today, sending the yield to 3.04%.  While that sounds extreme, the 30 year has been at 2.6% as recently as 2008.  The 10 year at 1.87% is well below it's financial crisis low.

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Insult to Injury Part II

Earlier this month in a post about BAC and YHOO rallying upon executive departure I talked about how HPQ sits like a coiled spring waiting for news of Apotheker's departure.  Sure enough, even a rumor of his ouster is enough to make the stock rally 10%.

Dollar Rally

Just checking in on the trade weighted dollar, which has seen a slight move higher recently, especially since the beginning of September.  The "Broad" Index is effected by the Euro, but less so than the DXY which is primarily a Euro proxy.

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Tuesday, September 20, 2011

Still No Sign of Life in Housing

Housing starts were reported this morning at 571k for August.  Although down 5% from the previous month, the number is in line with the tight range that has developed over the past several years.  Housing continues to bounce along the bottom.

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Friday, September 16, 2011

The Effect of Food as Fuel

CF industries produces fertilizer, an important input when growing corn.  The company presented at a conference this week and included the following slide showing the dynamics of the current corn market.  It's pretty amazing how much corn production is being converted into ethanol in the last few years.

Stock to use (right scale) is a measurement of the tightness of the corn market, a lower ratio means that supply is tight. We're at levels that are the tightest in at least a decade, at least partially due to policy pushing corn into the fuel stream.  Not surprisingly, the price of corn has benefited (quoted in cents per bushel).

Thursday, September 15, 2011

About That Whole Deflation Thing...

Yet another reason why "we're not Japan."

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Good trade for NFLX CFO

One of the first chinks in the NFLX armor came back in December when its CFO unexpectedly left the company having exercised $20m worth of options.  For a while it looked like a bad trade as the stock ran another 50%.  With today's miss, the stock is back below where he left though.  Cheers to you Barry McCarthy.

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Wednesday, September 14, 2011

EQR Rent and Occupancy Levels

One more chart from EQR showing rent and occupancy levels.  High occupancy levels give EQR pricing power.  From the chart, rents have risen about 16% over the last 20 months (funny how this hasn't shown up in CPI).  Turnover in units has gone from 60% per year during the housing boom to 40% per year as fewer people decide to move.

Echo Boomer Demographics

Courtesy of Equity Residential (the apartment REIT), two charts.  The first shows the demographic bubble of the "Echo-Boomers" those aged 20-34 through 2020.  The second shows household formation vs. multifamily building permits over the last decade.

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Remember Cash for Clunkers?

Add to housing another segment of the economy that has been extremely sluggish.  Except for the one month spike on cash for clunkers in 09, auto sales have not come close to pre-financial crisis numbers.  Although auto sales barely budged in the 03 recession, in the 80s and 90s recessions, it took several years for auto sales to recover.  We're going on 3.

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Checking in On Credit

Generic BBB bond yielding 4.25%.  That actually sounds kind of cheap...

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The Geithner Guarantee

Nobody's perfect, especially in forecasting the future, but with Geithner's guarantee of no Lehmans in Europe, another Geithner guarantee comes to mind...

Tuesday, September 13, 2011

Poverty Rates By Age Cohort

The Census Bureau released an annual report on national incomes today, which showed some stunning and sad statistics.  In addition to a chart which showed that the median Male worker's wages are unchanged (inflation adjusted) since 1968, there is this chart on poverty rates.

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Aside from the fact that 22% of Americans under the age of 18 live in poverty, what's striking is the improvement in the poverty rate for the 65 and older age group.  Whereas in 1959 this group had the highest poverty rate by a long shot, today it enjoys the lowest level of poverty.  At the risk of being overly cynical I'll point out that the age group with the highest level of poverty has no voting rights, while the group with the lowest votes consistently.  I don't suppose that contributes to social welfare programs which enrich the elderly and are bankrupting the US government though...

A Long Run of Underperformance for Shanghai

Considering the fact that the Chinese are pretty much assumed to be the new global hegemon, the Shanghai equity market has performed pretty poorly for a surprisingly long period of time.  Below is the performance vs. the S&P as expressed by ratio (when the chart is going up the index is out performing, when it's going down it's underperforming).  Since the middle of 2009, Chinese stocks haven't gone much of anywhere.  The average P/E ratio is 14.85x.

Is Best Buy Losing Market Share?

Best Buy reported earnings on Tuesday and disappointed relative to analyst estimates.  The shares are down 7%, and many are talking about how the company is in secular decline--just becoming "Amazon's showroom."  In order to assess the validity of the statement, below is a chart of BBY's North American revenues as a percent of total US retail sales.  Included in the chart are AMZN's consumer and electronics segment sales for North America and AAPL's retail segment net revenues (includes some foreign revenues).

Click to Enlarge.  Source: Company Reports and Retail Sales (Census Bureau)

Although BBY's share did turn down in 2010, its share of retail sales has increased overall, even just since 2007.  In fact, aided by Circuit City's bankruptcy, BBY's share of retail sales in the consumer electronics retail space has increased significantly over the past several years to 37% of the market.

Still, if brick and mortar outlets are losing share to e-commerce, BBY's share gains are a hollow victory.  Looking closely though, there's reason to believe that brick and mortar share isn't declining as much as some might expect though.  While it's true e-commerce is growing very quickly, brick and mortar electronics retail share of total retail sales has been pretty flat since 2002.

Flat share of wallet means that the fortunes of electronics retailers have been tied more closely to aggregate retail sales than secular decline.

This suggests that BBY's problems may be more cyclical than secular and that once the consumer comes back, if the consumer comes back, BBY could benefit.

Greece GDP

With Greece perpetually in the headlines, below is a checkup on how GDP has fared in the midst of the crisis.  The economy certainly hasn't performed well, making the debt burden that much worse.  Government debt to GDP is now about 150%.

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Monday, September 12, 2011

Basel III Tier 1 Capital Requirements Timeline

A trifecta of banking posts today because Barclay's financial services conference is in process.  The exhibit below shows the timeline for Basel III implementation courtesy of BAC's presentation.  Despite the murmurs that BAC needs to raise more capital under Basel III, BAC says that on a fully implemented basis, tier 1 capital is 6.75% today.  This means that they meet the capital requirements through 2016 without doing anything.

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BAC vs. WFC Twice the Book Value, Half the Market Value (almost)

Quick snapshot

BAC Book Value: $222B
WFC Book Value: $137B

BAC Market Cap: $70B
WFC Market Cap: $124B

BAC P/B: 0.31x
WFC P/B: 1.1x

Considering that the two companies are effectively oligopolists in the same market, the divergence is pretty striking.  Obviously the market thinks BAC is going to lose a lot of money and a lot of market share over time.

Delinquency Rates in Large Mortgage Servicer Portfolios

A chart pulled from WFC's presentation at the Barclays Financial Services conference today.  It shows the delinquency rate of mortgages serviced by the Large Banks.  The delinquency rate has implications for what kind of assumptions one makes about reps and warranty exposure.

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Friday, September 9, 2011

Look who Finally Joined the Party

Considering that we spent the better part of the summer worrying about a collapse of the Euro, it was more than a little strange that the only asset that didn't reflect the panic was the Euro itself.  Today though the Euro is finally breaking down and taking the rest of the market with it.

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Thursday, September 8, 2011

Comparing Procter & Gamble Debt to Equity

As if it isn't already telling enough that the dividend yield on the S&P 500 is higher than the 10 year treasury yield, here's another sign that stocks are extremely cheap to bonds: the difference in the yield on a 23 year P&G bond (quote via Scottrade) and the dividend yield on its equity is just 60 bps.

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Unlike S&P 500 dividends and Treasury coupons, Procter's coupons and dividends are paid out of the exact same cash flow, which was $13.2B in 2011. Yet the relative price of Procter's debt vs. equity makes it look like these are securities from two totally different companies.

If P&G's earnings power is less certain than it once was (as suggested by the high dividend yield), then why is the debt yield so low? Conversely, if the earnings power is stable (as suggested by the low debt yield) then why is the dividend yield so high?

At these yields, an equity investor is essentially buying a free call option on Procter's growth. Considering that P&G has raised its dividend every year for the last 56 years, that seems like a pretty safe bet.

Personal Lines P/C Insurance Industry Snapshot

Two charts from the Travelers presentation at KBW's insurance conference.  Each gives some insight as to the lay of the land in the personal lines property/casualty insurance business.

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2011 Earnings Estimates Remain Pretty Flat

Despite the recent turbulence in equity markets, EPS estimates for the full year 2011 have remained pretty flat as markets have fallen.  Most recently, the estimate of S&P 500 earnings for 2011 is $97.71 according to first-call.  This means that at 1200, the S&P is trading at 12.28x earnings--not too expensive considering the 10 year is at 2%.

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Initial Jobless Claims

It's Thursday, so like every Thursday for the past few years we watch the weekly jobless claims data.  Today's data showed that jobless claims rose last week to 414k and remained above the psychologically important 400k level.  Below is a historical chart of the 4 week moving average of claims.

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Wednesday, September 7, 2011

Comparison of Catastrophe Events YTD

W.R. Berkley presented today at KBW's insurance conference as well.  I thought this slide was informative about the relative incidence of catastrophes for 2011.  Although it feels like a pretty significant cat year for insurers, WRB argues that it really hasn't been that bad on a historical basis.

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Marlboro Market Share in the Cigarette Market

No matter how you feel about smoking, from a business perspective you have to respect that market dominance.  Altria pays a 6% dividend yield.

If Only the Whole World Were Like the Eurozone

Aflac is presenting at KBW's insurance conference today.  I was watching the presentation, and the company shows this slide:

Aflac does a significant amount of business in Japan, which is why the company has such large swings in dollar EPS depending upon the level of JPY.  I can't help but look at this slide and think about how much simpler analysis of Aflac would be if I didn't have to worry about currency swings on top of worrying about the business.

It's a pretty intuitive thought, but one that is particularly salient given what's going on in the Eurozone today.  With so many pundits pontificating about how the unified currency system is untenable, so few acknowledge the superior benefits that the Eurozone has enjoyed from a unified currency.  Just like the metric system does for weights and measures, a standardized unit of account greases the rails of commerce.  A unified currency lowers the cost of doing business simply because it simplifies analysis and reduces uncertainty.  

Maybe that's why the leaders of Europe are fighting so hard to save the Eurozone.  A collapse of the Euro would be devastating to real GDP in the region--not just because of the Lehman like shock effects but because of the economic destruction caused by going from a simple solution (single currency) to a complex one (many currencies).

Is the NFLX Reign of Terror Over?

Amidst all the green today, there is one stock which is notably not participating.  NFLX, long the darling of momentum investors and the bane of value investors' existence, is down 2.3% even as the S&P 500 is up nearly 25 points.  The stock is down 30% since hitting a high of $300 per share and news flow has seemed to move against the company in recent weeks (e.g. lack of a Starz extension and a poor reception to price increases).  Many a short has been carried out on his shield trying to battle the Netflix beast, but as the chart begins to break down, is the reign of terror finally over?

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Adding Insult to Injury

Last night there were two high profile firings of Carol Bartz at Yahoo and Sallie Krawchek at Bank of America.  Even though both are big time executives who should have pretty thick skins, it can't make a person feel too good when a stock rallies on news of your ousting.  Yahoo is up 6% today and BAC is up 4%.

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Meanwhile HPQ sits like a coiled spring for news of Apotheker's departure...