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Revised 2015 Interest Rate Outlook: Is The Fear Rational?
- Recent market developments have resulted in a revision of the 2015 interest rate outlook.
- The decline in the price of crude oil has increased deflationary concerns.
- The sharp decline in the 10-year yield is worrisome.
Cliffs' Dividend Suspension Is Good News
- On January 26, 2015, Cliffs announced the elimination of the common stock dividend for 2015.
- The decision to eliminate the common stock dividend is a positive development.
- The common stock dividend elimination was expected.
Bondholders Less Nervous At Cliffs Natural Resources
- Since the middle of December 2014, bond prices have stabilized and rebounded.
- The first quarter of 2015 compared to first quarter of 2014 could benefit from lower energy costs.
- The convertible preferred stock and common stock prices have improved.
- Huge short interest and large option open interest.
S&P 500 Performance In A Year Ending In 5
- The S&P 500 index has had rough start to 2015. It was down the first day of trading and down for the year to date.
- The first day of trading has been down in five of the last seven years ending in 5. The first quarter has been positive in 5 of the 6 years.
- The table below shows the first-day change and the return for the first quarter.
- DuPont's stock price and income has shown long-term growth. The yield on cost for the stock purchased during 1965 might be surprising.
Cliffs Natural Resources Could Be Worth Way More Than $1 Per Share
- Credit Suisse reduced its price target on CLF from $10 to $1.
- There are five steps to regain bondholder confidence that could amply reward stockholders.
- A review of U.S. iron ore operations revealed something surprising.
Short Sellers Should Thank Herbalife
- The capital structure was weakened with an increase in long-term debt, which went from $431 million in December 2012 to $1.728 billion in September 2014.
- Long-term debt per share expanded to $18.82 from $4.18.
- $3.1 billion was spent buying back stock since 2007. That is 80% of today's market value.
Cliffs Nervous Bondholders
- A rough year for Cliffs stockholders and bondholders.
- Impairment charge reduced total assets as a percentage of total liabilities from 210% to 96%.
- Possible December tax loss and or margin selling may send prices lower.
4 Energy Stocks That Are Down 12% To Over 60% Since June 30
- Loss in stock market value tops $137 billion since June 2014.
- Loss of stockholder wealth is roughly $467 per capita.
- Energy issues paid dividend yields in excess of the SPY average.
2015 Interest Rate Outlook And Review Of 2014
- Interest rate articles from April 7 and October 16 reviewed. Did the 10-year yield act as expected? You be the judge.
- Higher short-term interest rates expected in 2015.
- Range bound trading along most of the Treasury curve.
- Keep a watchful eye on the velocity of money.
Expect Cliffs To Terminate The Common Stock Dividend
- Statutory 'surplus' test failed.
- Earned surplus test failed.
- Dividend cut expected on the common stock and the Mandatory Convertible Preferred Stock.
The Economic Risk Of Falling Crude Oil
Dec. 2, 2014 • 41 Comments
- Falling crude oil prices good news or not?
- Remember what toppled the Penn Square Bank?
- Could lower government oil revenue and royalties result in higher taxes?
- There is a risk of foreign instability and/or the sale of US Treasury obligations and higher interest rates for 2015!
Is The Federal Reserve ... Boxed In?
Oct. 30, 2014 • 3 Comments
- The Federal Reserve conducts monetary policy for maximum employment, stable prices, and moderate long-term interest rates, per the Federal Reserve Act.
- Congress in 1977 amended the Federal Reserve Act.
- Unemployment has been declining.
- The FOMC uses the annual change in the personal consumption expenditures, PCE as its price gauge and targets a 2 percent rate of change.
Bond Yields Have Little Room To Fall
- October 15, 2014 may go down as a key turning point for interest rates.
- German and US Government bond yields compared.
- Review the trend in inflation and 10-year interest rates.
Cliffs Versus Vale: Stock And Bond
- The stock prices of Cliffs Natural Resources and Vale have moved in a similar manner.
- The bond prices of Cliffs and Vale have diverged.
- Shareholders should pay attention to the bond market.
Apple With 3.50% Yield Can Reach $203
- Do you think the market value of Apple has increased since September 2012?
- The forest (all investors) versus the tree (individual investor).
- Why not give owners the money rather than departing owners?
Cliffs' New Board Is Off To A Rough Start
- Shareholders have lost nearly $850 million in market value, Stock closed on August 7, 2014 at $17.09 and on September 25, it hit $11.31.
- The new Board authorized the purchase of up to $200 million of its own shares.
- The 6.25% bond due 2040 has gone into a free fall since the share repurchase plan announcement.
Walgreen Weakness - Is It Time To Buy?
- Stock price fell sharply.
- Financial outlook for FY 2016 reduced to $4.25-$4.60.
- Dividend increased to 33.75 cents per share for a 2.28% dividend yield.
10-Year Versus Average Hourly Earnings
- What is the relationship between the 10-Year US Treasury Note and the yearly change in average hourly earnings? A look at a long-term chart might provide some answers.
- 10-Year yields and average hourly earnings moved higher from the 1960s until the 1980s. Which one increased at a faster pace? Look at the chart.
- Did average hourly earnings or 10-Year yields fall first?
Income Opportunity - Northern Trust Perpetual Preferred New Issue
- The new preferred issue by Northern Trust offers an attractive dividend yield.
- Preferred yield is 385 basis better than common yield, 226 basis points over the bond due 2025, and 333 basis points over the UST 10-year.
- Less risk than common, with a nice yield pickup.
Coca-Cola: Capital Allocation - Paper Versus Hard Assets
- A greater portion of revenue was allocated to the repurchase of shares than for plant, property and equipment during 8 out of the past 10 years. Meanwhile, long-term debt increased.
- Long-term debt has increased by $17.997 billion with higher interest expense. That is less capital available for shareholders and employees.
- Should the compensation plan base reward on share price or market value of the firm?
Institutional And Retail Cash On The Sidelines
Jul. 15, 2014 • 5 Comments
- Factors that influence the optimal level of cash, and how cash balance can affect portfolio performance.
- Charts showing retail and institutional cash balances.
- One strategy to benefit from a steep yield curve.
J.C. Penney Stock Versus Bond Update
- Determine which portion of the capital structure provided the better return to investors. Did the common stock or bond outperform?
- Explore decisions that may have contributed to the poor financial performance. And the tough management decision that helped aid the turnaround.
- A few catalysts that might improve investor sentiment and move the stock and or bonds..
Mortgage Debt Versus M2 Money Supply
- Review M2 money supply growth.
- Review mortgage debt outstanding growth.
- Compare mortgage debt growth with M2 money supply growth.
- Key takeaways and thoughts on the future.
Trends In GDP, 10-Year Yield And Compensation
- Trend in government spending as a percentage of GDP.
- Rate of GDP change versus change in compensation and the 10-year yield.
- 10-year yield versus CPI and compensation.
- Key takeaway and interest rate outlook.
Did May Retail Sales Miss Or Beat Consensus?
- Zero Hedge headline – May Retail Sales Miss.
- May Retail Sales missed expected 0.6% increase with a 0.3% print.
- Did May Retail Sales beat or miss?
Stock Market Versus Net Corporate Dividends
- Dividend and stock price charts compared with different base index date. The same data reveals a different look.
- Apple and CME made capital allocation changes during 2012.
- Dividends do matter and share repurchase programs may not increase the value of the firm.
Higher 10-Year Yield Ahead - Not According To These Charts
- 10-year yield versus MZM Velocity.
- 10-year yield versus the 3-month yield – long-term.
- 10-year yield versus the 3-month yield – shorter-term.
The Flash Boys Have It Wrong - The Market Is Not Rigged
- Speed advantage to the HFT - so what. Someone will always have a speed advantage.
- Arbitrage is good. The examples in Flash Boys appear to be arbitrage related.
- Econ 101 - supply and demand curve. Try to buy 100,000 shares with 10,000 offered then expect the market to re-price.
- Unfair advantage, oh really? Who determines what is fair?
- Unintended consequences. Could investors be facing wider spreads and higher costs?
- Don't Fear Cyprus: Market Weakness Brings Buying Opportunity
- Is Home Depot Or Lowe's The Better Value?
- Herbalife J.C. Penney And Pershing
- Leaders And Laggards Of The Dow Jones Industrial Average