An Analysis of Daily Events that Impact Your Money
Wednesday, March 27, 2013
Morning Journal-A primer on derivatives
Economics
This Week’s Data
The
International Council of Shopping Centers reported weekly sales of major
retailers fell 1.7% versus the prior week but rose 1.0% versus the comparable
period last year; Redbook Research reported month to date retail chain store
sales up 2.6% on a year over year basis.
February
durable goods orders were up 5.7% versus expectations of an increase of 3.6%;
ex transportation, the number was up 0.5% versus estimates of up 0.7%.
The
January Case Shiller home price index advanced 1.0%, in line with forecasts.
February
new home sales fell 4.6% versus an anticipated drop of 2.7%.
The
March Conference Board consumer confidence index plunged to 59.7 from
February’s reading of 69.5.
The
March Richmond Fed’s manufacturing index was reported at 3.0 versus
expectations of 5.5.
Weekly
mortgage applications rose 7.7% while purchase applications were up 7.0%.
Other
The
latest from Gary Shilling (medium):
A
primer on the derivatives market (medium and today’s must read):
Global
financial stress rises (short):
***overnight,
Italian industrial and retail sales came in well below expectations.
Politics
Domestic
Update on the
student loan debacle (medium):
The Morning Call--Cyprus: the good, the bad and the ugly
The Morning Call
The Market
Technical
The
indices (DJIA 14559, S&P 1563) had a great day. The Dow finished above its former all time
high (14190) and the upper boundary of its short term uptrend (13803-14492)
while the S&P closed below its comparable levels (1576) and
1508-1582). Both remain within their
intermediate term uptrends (13588-18588, 1438-2032) and their long term
uptrends (4783-17500, 688-1750).
The
important takeaway is that the Averages are still not in sync with the S&P
not confirming the Dow’s break out to new highs. This leaves open the question of whether the
Market is topping or pausing before another upward assault. I continue to believe that (1) stocks are
topping, (2) the S&P can still make a challenge of the 1576 level and (3)
even if it breaks out to the upside, the reward is less than 10% and the risk
is substantial.
Volume
declined; breadth was mixed with the flow of funds and on balance volume
indicators weak. The VIX fell, remaining
within its short and intermediate term downtrends.
GLD
was down, staying within its short term downtrend. However, the developing support level
continues in tact.
Bottom line: as
frustrating as it may be, the indices remain out of sync; and hence, Market
direction is in question.
The
historical performance of stocks in April (short):
Here
is a positive technical indicator (short):
Fundamental
Headlines
Lots
of stats yesterday; and unfortunately, they were not all that great. Durable goods orders were the bright spot
while weekly retail sales, January home prices, February new home sales,
consumer confidence and the Richmond Fed manufacturing index all fell short of
expectations. This is really the first bad data day in a long time; so I see no
reason to get concerned.
This
is a great piece on the good, the bad and the ugly of the Cyprus
solution (medium and a must read):
Nobody
in the EU (except the Germans) is happy with the Cyprus
bail out, especially the capital controls:
The
Cypriot youth:
The French and Spanish:
The
Brits:
But as hinted to
in an earlier link, the Russians seem to be fine. They snuck out the back door (medium):
Satyajit
Das on Cyprus
(medium):
The
problem with the euro in one short, easy lesson (short):
http://www.zerohedge.com/news/2013-03-27/eurozone-east-german-motorcycle
http://www.zerohedge.com/news/2013-03-27/eurozone-east-german-motorcycle
Bottom
line: as dismal as much of the above reading is, US investors were clearly
upbeat. Part of that optimism is
understandable: (1) the uncertainty over depositor insurance and capital
controls will likely drive money to the US
and (2) as long as the EU financial system is in a state of flux, the Fed is
apt to keep the pedal to the metal.
As I indicated
yesterday, I am also encouraged but for somewhat different reasons---though I
do agree that foreign money inflow can
be a positive. I am positive because the
eurocrats have finally taken steps that are half way sensible, i.e. holding
risk takers versus taxpayers responsible for bank defaults. (***in fact, if the
US had handled
its financial crisis using the Cyprus
template, we would have a sounder banking system than we do now.) To be sure, it is not all perfect (capital
controls, not forcing the banks to go through bankruptcy court); but it is a
major step in the right direction.
Yes, there is
going to be pain that likely extends far beyond Cyprus . But there was going to be pain anyway, sooner
or later. In my opinion, anyone who
assumed that after years of totally irresponsible fiscal policies that somehow the
EU ‘muddling through’ scenario would not involve some pain, at times severe, is
suffering from an acute case of naiveté.
So I guess where
I part company with those who were pumping up stock prices yesterday is that I
believe (assuming the EU/ECB doesn’t slap another monetary band aid over the
next sovereign/bank problem but uses the Cyprus template) that the pain will
come near term. True that will mean
flows into the dollar which will be a positive.
But there will still likely be heartburn sufficient enough to sound the
derivative counterparty alarms. Plus Europe
will continue to deteriorate economically and that is not going to help the
profits of US companies. I don’t believe
that this combination of events will play well in an overvalued US
stock market.
The
latest from Nomura (short/medium):
The
latest from Lance Roberts (medium):
Pension
fund rebalancing could be a problem for stocks (medium):
http://www.zerohedge.com/news/2013-03-26/q1-2012-deja-vu-pension-fund-rebalancing-suggests-window-un-dressing-could-hurt-stoc
http://www.zerohedge.com/news/2013-03-26/q1-2012-deja-vu-pension-fund-rebalancing-suggests-window-un-dressing-could-hurt-stoc
Tuesday, March 26, 2013
Teva Pharmaceuticals (TEVA) 2013 Review
Teva
Pharmaceutical Industries is an Israeli based global pharmaceutical company
that develops, manufactures and markets generic and proprietary branded drugs
and active pharmaceutical ingredients.
The company has grown profits and dividends at a 25%+ rate over the last
ten years earning a 14-20% return on equity.
The company was little impacted by the recent recession and should
continue to expand as a result of:
(1) plentiful
growth opportunities in generic drugs.
The company currently has 83 product applications pending before the
FDA,
(2) a
significant and growing branded pharmaceutical business,
(3) the company
has a very successful at resolving patent challenges which is a key part of
generic product selections and development strategy,
(4) it is pursuing
strategic relationships,
(5) a major
R&D effort in the biopharmaceutical and biogeneric markets.
(6) significant
cost reduction program.
Negatives:
(1) the
pharmaceutical industry is very competitive and the generic segment is highly
crowded,
(2) gaining
approval for drugs is becoming more difficult in an increasingly tough
regulatory environment,
(3) weak sales
in the EU.
Statistical Summary
Stock Dividend Payout # Increases
Yield Growth Rate Ratio Since 2003
Debt/ EPS Down Net Value Line
Equity ROE Since 2003 Margin Rating
*many companies in TEVA
industry do not pay a dividend
Chart
Note:
TEVA stock has performed poorly since its
October 2008 low. While it has managed
to trade above the downtrend off its March 2008 high (red line), it is just
barely above it currently. Similarly, the
stock struggled several times with the November 2008 trading high (green line)
and today trades below that level. Long
term, the stock is in a trading range (straight blue lines). Intermediate term, it is a downtrend (purple
lines). The wiggly blue line is on
balance volume. The Aggressive Growth
Portfolio owns a 70% position in TEVA . The upper boundary of its Buy
Value Range Sell
Half Range
3/13
More on Cyprus
Larry McDonald makes a great point---even though the losers in the Cyprus are the risk takers, rightfully so, the politicians are the ones making those decisions not the bankruptcy courts. And that is not positive for investor confidence.
Morning Journal--The American Oligarchy
Economics
This Week’s Data
The
February Chicago Fed National Activity Index came in at .44, up from the prior
reading of -.49.
The
March Dallas Fed manufacturing index was reported at 7.4 versus expectation of
3.4.
Other
The
case for optimism (medium):
Politics
Domestic
The American
oligarchy (medium):
International
In
Japan , things
keep getting nuttier (short):
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