Today - Saturday, March 15, 2014
- They're still playing sports highlights at the greasy spoons in Boston, says Jeremy Grantham, not too worried about stocks being in a bubble. Harking back to a real bubble, Grantham remembers 2000, when the Celtics were displaced by CNBC's breathless coverage at these same joints.
- Numbers make the same argument: The S&P 500 at 1,860 is only about 1-2 standard deviations outside the normal distribution of stock levels. To get to a two-sigma event - and a bubble - would require an S&P 30% higher than where it is now.
- "There is an enormous creative tension for a sensible investor," says Grantham. The market is overvalued, but not absurdly so, and then there's the Fed backstop. "On a shorter time horizon, you can get whacked around the head, as we have been frequently."
- So what's he buying? Emerging markets and value stocks in Europe are only selling at about fair value. In the U.S., high-quality stocks are not nearly as overpriced as the rest of the market (isn't the S&P 500 supposed to be "high-quality" stocks?). The Wells Fargo Advantage Absolute Return Fund (managed by GMO) has a 49% global equity allocation - high considering GMO's belief stocks are so overvalued - but Grantham expects the weighting to move down to 38% by October, which would be more inline with GMO's expectations of future equity returns.
- Broad large-cap ETFs: PRF, VV, SCHX, NY, JKD, FEX, EQL, EEH, SPXH, TRSK, FWDD, PXLC, ERW, ALTL, SYE
- It's a sell sign: Corporate insiders are more bearish than at any time since at least 1990.
- Such bearishness isn’t evident from the traditional sell-to-buy ratio, which stands at above average levels but no higher today than a year ago; Mark Hulbert highlights an alternative sell-buy calculation that strips out those who own more than 5% of a company’s shares - typically institutional investors, whose past transactions typically have shown no correlation with subsequent market moves.
- Based on this adjusted ratio, corporate officers and directors in recent weeks have sold an average of six shares of their company’s stock for every one they bought - more than double the average since 1990.
- Selling has been particularly aggressive in the capital goods, tech, consumer durables (autos, construction, appliances) and consumer non-durables (food and beverages, clothing, tobacco) sectors; pessimism isn't so rampant in energy, industrials and financials.
Friday, March 14, 2014
6:50 PM| 9 Comments
- A major snarl in railroad traffic is rippling through the supply chains of businesses across the U.S., much of it caused by pileups at BNSF Railway (BRK.A, BRK.B) in a critical area where it is shipping crude oil from North Dakota’s Bakken Shale region, WSJ reports.
- BNSF already was stretched by the heavy demand for oil transport, but the problem grew when the oil boom led to shortages in locomotives and crew, and a bitter winter forced it to use smaller trains, all of which has caused a ripple effect across the U.S. as shipments have been delayed.
- While BNSF isn’t the only railroad with capacity problems, its troubles have been aggravated by a big grain harvest and its surging crude business; the backlogs could wind up costing shippers hundreds of millions of dollars.
- Target (TGT) warned that last year's security breach could have been more extensive than reported so far and lead to further losses, the retailer discloses today in its annual 10-K filing.
- TGT says it cannot predict the length or extent of any ongoing impact to sales, or how long it might take to restore the company's reputation in the wake of the breach.
- So far, TGT has said ~40M payment card records were stolen along with 70M other customer records.
- HudBay Minerals (HBM) extends its hostile takeover bid for Augusta Resources (AZC) and drops its condition that shareholders holding at least two-thirds of the stock tender to the offer.
- AZC shareholders now have until 5 pm on April 2 to receive 0.315 of a HBM share for each of their shares.
- HBM says the bid, which AZC has rejected as inadequate, represents a 62% premium to the 20-day volume weighted average prices of the two issues prior to the offer.
- GoDaddy Group is gearing up for an IPO and is preparing to interview underwriters in the coming weeks, WSJ reports.
- An IPO for GoDaddy would be the latest in a rush of such deals as stock indexes trade near record highs and investors clamor for shares in newly listed companies; the first two months of 2014 marked the busiest start to a year for IPOs since 2007.
- A competitor in the website hosting business, Endurance International (EIGI), went public in October; its shares have gained 26% since then.
- Stocks drifted lower through the afternoon, wrapping up the biggest weekly losses since late January for the Dow and S&P 500, as geopolitical tensions kept investors on the sidelines.
- Market sensitivity was on full display when indexes turned positive after the Russian foreign minister said Russia has no intentions of invading eastern Ukraine, but went negative again as U.S.-Russian talks broke apart without a resolution to the crisis.
- Small-cap stocks, which tend to be less exposed to developments overseas and more focused on the U.S., held up relatively well, the Russell 2000 gained 0.4%.
- Similar to yesterday, trading volume was on the light side with only 628M shares changing hands at the NYSE.
- Safe-haven investments rose: Buying in bonds pushed the 10-year Treasury yield down to 2.645% from 2.659%, while gold futures rose 0.5% to a six-month high $1,379/oz.
- Alcoa (AA -0.2%) is initiated with a Buy rating and $15 price target at Sterne Agee, which believes each of Alcoa's three market segments are poised to "enjoy independent secular trends."
- AA's downstream segment, which is 52% aerospace sales, will benefit “as destocking abates and as the long-term aerospace delivery cycle engages Alcoa's world class fastener, investment cast, and forging operations,” the firm says.
- For the midstream segment, the analyst expects 1.2M tons of auto sheet by 2025, but this number “could grow more than 2x as adoption accelerates across platforms.”
- 43% of AA's sales come from the upstream commodity segment, which are "executing on cost curve improvements through utilization [and] rationalization."
- US Steel (X -1.3%) is downgraded to Underperform from Neutral at Credit Suisse due to relative valuation and expected lower iron ore pricing in H2 2014.
- Equity prices, and particularly US Steel, seem to be overlooking recent commodity price weakness as a short-term destock related phenomenon - perhaps not surprising given the 2012 collapse and rebound in iron ore prices - but Credit Suisse believes that, unlike 2012, structural changes to the global ferrous supply/demand balance through mid-year will see commodity prices settle at a lower level in H2 than they did after the 2012 destock shock.
- Also, the firm thinks US Steel's relative outperformance vs. international peers including ArcelorMittal (AT) likely is due to EM/DM exposure trade, but the gap will close at some point.
- ETFs: DBC, DJP, GSG, RJI, GCC, USCI, CFD, CTF, RGRC, GSP, GSC, LSC, DEE, DJCI, UCI, CMD, DDP, DYY, BCM, UCD, FTGC, CMDT, SBV, DPU, CSCB, CSCR
- Nokia (NOK -0.4%) says it is considering its options after India's Supreme Court rejected its appeal against a demand for a multimillion-dollar payment before it transfers a mobile phone plant and other assets in the country to Microsoft (MSFT -0.2%).
- The ruling upholds a lower court verdict ordering NOK to pay a 35B rupee ($572.5M) guarantee after local authorities blocked the factory's transfer in a tax dispute; as a result, the factory - a critical part of the smartphone business MSFT is purchasing - remains shut.
- If the Indian manufacturing plant is not transferred to MSFT, it could mean less money for NOK from the deal; NOK could run it as a contractor to MSFT but not for long, the company has said in court hearings.
- Anworth Mortgage (ANH +1.9%) has its tail in the air after the company boosts its buyback program by 10M shares. Thus far in Q1, the company has bought back 4.023M shares at an average price of $4.93 each. For the year ended Dec. 31, Anworth repurchased 7.646M shares at an average price of $4.95 each.
- Anworth is also expanding its investment horizons, forming Anworth Properties to invest in other sorts of mortgage assets and real estate rental properties.
- Company book value per share as of Dec. 31 was $5.98 putting the current price of $5.34 at a 10.7% discount to book.
- Press release