Wednesday, April 27, 2011

Shiller & Siegel: Is the stock market overvalued?

Weighing in on whether the bullish market is too much of a good thing, with Robert Shiller, Yale economics professor and Jeremy Siegel, Wharton finance professor.

Source: CNBC, April 11, 2011.

The chart below show’s Shiller’s normalised price-earnings ratio since 1950. A picture speaks a thousand words …

April IPO Filings Highest Since ’07, Renaissance Says

Monthly filings for U.S. initial public offerings in April are at the highest in more than three years as companies including International Ltd. and BrightSource Energy Inc. seek to raise capital, Renaissance Capital LLC said.

New filings for U.S. IPOs total 31 so far this month, the most since 40 companies registered to go public with the U.S. Securities and Exchange Commission in August 2007, Renaissance, an IPO investment firm, said on its website today.

Jiayuan, a Chinese online-dating company, and Renren Inc., the country’s largest social-networking service, announced plans for U.S. IPOs after shares of Beijing-based Qihoo 360 Technology Co., the Beijing-based provider of Web browsers, more than doubled following a March 29 offering. Through yesterday, Zipcar Inc.’s shares had climbed more than 50 percent since the car- sharing service’s April 13 IPO, making it this month’s best- performing U.S. offering.

“A combination of broader market improvement coupled with recent successful IPOs has inspired other companies in the pipeline to be more active in terms of going public,” said Stephanie Chang, an analyst at Greenwich, Connecticut-based Renaissance. “A lot of the companies that have filed recently are somewhat similar to the ones we’ve seen that were successful.”

BrightSource, Vanguard

Almost half of this month’s new filings have happened in the past week, and 21 completed IPOs in April have raised a total of $5.6 billion, Renaissance Capital said. The data exclude filings by special-purpose acquisition companies, closed-end funds and trusts.

BrightSource, an Oakland, California-based solar-power equipment maker, will attempt to raise $250 million to fund working capital, it said in an April 22 filing with the SEC. It’s one of at least 14 companies that have filed for U.S. IPOs since April 20 attempting to raise as much as $2.5 billion, data compiled by Bloomberg show.

Earlier this month, Vanguard Health Systems Inc. said it plans a $600 million IPO. The Nashville, Tennessee-based hospital operator would come to the public market after HCA Inc. raised $4.35 billion in its March 9 initial offering including an overallotment option. HCA’s shares have gained 6.7 percent.

The 31 filings so far this month topped the total of 29 in April 2010, Renaissance’s data show. Companies have filed for 82 U.S. IPOs so far this year, compared with a total of 83 in the first four months of last year.

Case Shiller Double Dip Almost Here

Today, the S&P Case Shiller NSA 20 checked in at 139.27; the previous post-bubble low is 139.26.

Here’s the release:

“Data through February 2011, released today by S&P Indices for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, show prices for the 10- and 20-city composites are lower than a year ago but still slightly above their April 2009 bottom. The 10-City Composite fell 2.6% and the 20-City Composite was down 3.3% from February 2010 levels. Washington D.C. was the only market to post a year-over-year gain with an annual growth rate of +2.7%. Ten of the 11 cities that made new lows in January 2011 saw new lows again in February 2011. With an index level of 139.27, the 20-City Composite is virtually back to its April 2009 trough value (139.26); the 10-City Composite is 1.5% above its low.”

Case Shiller charts:

click for larger graphs

Alarming Stat of the Day

Here’s another one of those statistics where you don’t know whether to laugh or cry. Consistent with the rising number of Americans on food stamps (now at almost 45 million and still rising), wages now make up the smallest share of income since record keeping began 82 years ago. This report in USA Today has all the details:

Americans depended more on government assistance in 2010 than at any other time in the nation’s history, a USA TODAY analysis of federal data finds. The trend shows few signs of easing, even though the economic recovery is nearly 2 years old.

A record 18.3% of the nation’s total personal income was a payment from the government for Social Security, Medicare, food stamps, unemployment benefits and other programs in 2010. Wages accounted for the lowest share of income — 51.0% — since the government began keeping track in 1929.

From 1980 to 2000, government aid was roughly constant at 12.5%. The sharp increase since then — especially since the start of 2008 — reflects several changes: the expansion of health care and federal programs generally, the aging population and lingering economic problems.

Total benefit payments are holding steady so far this year at a $2.3 trillion annual rate. A drop in unemployment benefits has been offset by rises in retirement and health care programs.

Americans got an average of $7,427 in benefits each in 2010, up from an inflation-adjusted $4,763 in 2000 and $3,686 in 1990. The federal government pays about 90% of the benefits.

Of course, with the economy still weak, now would be the absolute worst time to cut back on this government largess. Then again, the economy may never recover unless fundamental changes are made in how it operates, not the least of which would be a rethinking of the role of government and, naturally, the amount of money it borrows and spends.

Face to face with Marc Faber on U.S. budget deficit, dollar and precious metals

In this three-part interview, Marc Faber, editor of the “The Gloom Boom & Doom Report“, offers his views on how to tackle the U.S. budget deficit, as well as how that is affecting his U.S. investment strategy. He also discusses the outlook for the U.S. dollar and how that will impact the price of gold and silver.

Part 1: Tackling America’s budget deficit

Source: CNBC, April 18, 2011.

Part 2: Dollar direction and precious metals

Source: CNBC, April 18, 2011.

Part 3: Investing in gold

Source: CNBC, April 18, 2011.

The Falling Channel in Bond Yields

Technical analyst Chris Kimble takes a look 30-year Treasury yields over the past 15-plus years.

Chris comments: A bearish head & shoulders pattern is taking place in bonds... bond yields that is!

The multi-year falling channel looks to have stopped yields again. Now a bearish yield pattern has formed and a key support line has been taken out.

Jay Taylor: Turning Hard Times Into Good Times

Have you Seen Our Gold?

click here for audio Hour #1 Hour #2

53% Worry About Not Having Enough Money in Retirement; Implications of Boomer Retirement Plans

In spite of the massive stock market rally starting March of 2009, worries over retirement are up sharply from 2002. Please consider In U.S., 53% Worry About Having Enough Money in Retirement

A majority of nonretired Americans do not think they will have enough money to live comfortably in retirement, up sharply from about a third who felt this way in 2002. Nonretired Americans now project that they will retire at age 66, up from age 60 in 1995.

Younger Americans Most Positive

Younger Americans are the most optimistic about having enough money to live comfortably when they retire. They are also the least likely to say they will rely on Social Security as a source of income when they retire. This suggests that young Americans are looking optimistically toward other sources of income in retirement.

Nonretired Adults Now Project a Retirement Age of 66

Nonretired Americans now project a higher retirement age than in previous years. When Gallup first asked nonretired adults in 1995 when they expected to retire, 12% said they would retire after age 65. That percentage is now up to 37%. The percentage saying they will retire before age 65 is down from 47% in 1995 to 28% today.

Implications of Boomer Retirement Plans

Note the deflationary aspect of the survey results. Those who fear not having enough money for retirement have a strong incentive to spend less and save more.

Also note the number who expected to retire after age 65 has risen from 12% in 1996 to 37% today. In isolation, this would put upward pressure on the participation-rate and therefore unemployment. However, boomer demographics are such that it will take a decreasing number of jobs to hold unemployment constant.

In 2000 it took about 150,000 jobs a month to hold unemployment steady. Currently Bernanke expects it takes 125,000 jobs a month to hold the unemployment rate steady.

I expect that by 2015 it will only take 90,000 to 100,000 jobs a month to hold the unemployment rate constant.

However, there are millions of individuals who want a job and do not have a job but the BLS does not count as unemployed because they stopped looking for a job. Should those workers start looking for jobs, this too would put upward pressure on the participation rate and unemployment rate.

Mike "Mish" Shedlock

Silver – 8 Hour Chart Update

Based on open interest numbers from yesterday’s price action, we had a significant number of fresh short positions instituted in Silver on its run towards $50. Combined with record volume ( a mind boggling 319,024 ) it looks like we had a blow off top in silver for the time being. That high near $49.80 will now serve as the new resistance level beyond which silver is going to have to move before we can get a fresh leg higher in this market.

The market is now in the process of probing lower seeking to uncover support. Precisely at what level that will arise is unclear. It has found a bit of a respite from the selling near $44.60 but that looks fairly flimsy at this point. More substantial support lies closer to $43.50. Beyond that it looks as if $42 will be the next level.

To have a shot at making another run towards its recent peak, silver will have to close above $47.25, or the gap left from its Sunday evening open.

Dan Norcini

Two Railroad Stocks Charging Ahead: NSC, UNP

When Warren Buffett starts investing billions of dollars into a sector, you can bet it’s an industry on the rise. Buffett’s Berkshire Hathaway bought Burlington Northern Santa Fe for $26.5 billion last year. The company helped Berkshire’s profit jump 43 percent in the fourth quarter.

Burlington Northern isn’t the only railroad humming down the track. Norfolk Southern (NSC), the country’s fourth-largest railroad, and Union Pacific (UNP), the nation’s biggest, are seeing strong business too. So it’s a good time to consider their stocks.

Norfolk Southern

Norfolk Southern saw its profit surge 31 percent in the fourth quarter to $402 million from $307 million a year earlier, topping analysts’ estimates. Revenue rose 14 percent to $2.39 billion.

All three of the company’s business divisions recorded double-digit revenue increases amid strong demand from industrial customers. And Norfolk Southern expects the good times to continue rolling. "We have every reason to believe that 2011 will be an even stronger year for us" than 2010, CEO Wick Moorman said in a statement.

Many analysts like the stock, noting that the company has generated a free cash flow of about $1 billion during five of the past six years. “Medium-term trends in NSC's primary markets remain favorable and support rising traffic,” writes Standard & Poor’s analyst Kevin Kirkeby, who has a four-star buy rating on the stock.

Union Pacific

The company reported record first-quarter net income of $639 million, up 24 percent from $516 million a year earlier. Sales rose 13 percent to $4.49 billion, exceeding analysts’ estimates.

Even rising oil prices couldn’t keep Union Pacific’s profit down. Increased volume for all the commodities carried by the company buoyed its business. And Union Pacific expects volume to keep climbing, as the economy sustains its recovery. Meanwhile, the company can impose fuel surcharges to make up for its own higher energy costs.

"So far we haven't heard anything that puts the rail volume, pricing, or margin (ex-fuel) thesis at risk," Jefferies & Co. analysts write. Of seven analysts tracked by Yahoo, five have buy or equivalent ratings, and the other two are neutral.

UK is Bigger Fiscal Mess than Spain or Portugal; Fiat Currencies Don't Float

For all the attention focused on the US dollar, especially silly hyperinflation calls, one might think there are few problems elsewhere.

That is not the case, however, as reckless credit expansion in China is the fastest in the G7 by far, Japan has the highest debt-to-GDP ratio and the UK is a certifiable fiscal-deficit basket-case.

With a spotlight on the latter, please consider UK has third biggest budget deficit in Europe

Britain’s shortfall in its finances amounted to 10.4pc of gross domestic product (GDP) in 2010, according to data for each of the EU’s 27 member states from the statistics agency Eurostat.

That meant the UK had a bigger deficit, or annual shortfall, than the recently bailed-out Portugal and also Spain, which is viewed as the next euro-using nation to potentially need international aid.

The largest deficit in proportion to the size of the country’s economy was seen in Ireland, where the extra borrowing needed to shore up the banks left its deficit at 32.4pc of GDP.

Greece, which received a €110bn bail-out last year, was second with a deficit of 10.5pc, followed by the UK. Spain, at 9.2pc, and Portugal, at 9.1pc, were in fourth and fifth place.

The data showed the Greek finances were in an even poorer state than previously thought, as the latest figure – while trimmed from the previous year’s 15.4pc – was higher than the latest 9.6pc estimate from the European Union and the International Monetary Fund.

In terms of total debt, the UK fared much better, although it was still among the 14 EU member states burdened with a debt higher than 60pc of GDP last year. EU member states are supposed to keep their debt under the 60pc level.

The debt figures, which refer to a government’s total borrowing over time, rather than the latest yearly shortfall, showed Greece was again in the worst position with a debt equivalent to 142.8pc of its GDP, followed by Italy at 119pc and Belgium at 96.8pc.

The UK was in the ninth weakest position with a debt standing at 80pc of GDP, which was worse than Spain’s 60.1pc. The average debt across the 16 members that use the euro hit a record 85.1pc, up from 79.3pc the previous year.
Given the fiscal mess in the UK, one might expect the British Pound to be among the weaker currencies in relation to the US dollar. Indeed, the following chart shows that to be the case.

British Pound vs. US Dollar Monthly Chart

Note that the British pound is 22% down from its 2008 peak vs. the US dollar in spite of retrace of a portion of its loss, and in spite of US dollar weakness against nearly everything else.

I suspect the Yen will have a date with sanity at some point as well.

Fiat Currency Rule Number 1

The above discussion leads us to saying of a friend of mine "Clyde" who is fond of pointing out "Fiat currencies don't float, they sink at varying rates."

S&P 500 Climbs to Highest Since 2008 on Earnings

Stocks surged, sending the Standard & Poor’s 500 Index to its highest level since June 2008, as earnings at companies from Ford Motor Co. (F) to 3M Co. beat analyst estimates. Treasuries rose and the dollar fell versus the euro for a sixth day as a Federal Reserve policy meeting began.

The S&P 500 increased 0.9 percent to 1,347.24 at 4 p.m. in New York and the Stoxx Europe 600 Index gained 0.3 percent. The dollar matched the longest losing streak versus the euro in almost two years amid speculation the Fed will consider measures to keep interest rates low. Ten-year Treasury yields slid five basis points to 3.32 percent, the lowest level in a month. Oil was little changed at $112.21 a barrel and gold and silver fell.

Before today, the S&P 500 had failed to top its 2011 high reached on Feb. 18 even as it closed less than 1 percent below the peak on eight days in April. Stocks rallied today as Ford, 3M and United Parcel Service Inc. (UPS) joined the 79 percent of S&P 500 companies that have topped analyst earnings estimates since April 11. Investors also awaited the end of a Fed meeting tomorrow to gauge the central bank’s outlook for interest rates and its economic stimulus program known as quantitative easing.

“Corporate performance is excellent,” said Stephen Wood, the New York-based chief market strategist for Russell Investments, which manages about $155 billion. “The underlying economic performance in the United States has been a pleasant surprise. Our expectation is that the Fed ends QE2 in the summer and the growth baton will be handed from policy to the private economy. That’s providing rationale for the stock market to move forward.”

Dollar Index, S&P 500

The Dollar Index, used to track the U.S. currency against six trading partners, fell 0.3 percent to 73.779, the lowest since August 2008 on a closing basis, on speculation the Fed will signal plans to keep interest rates near zero for an extended period. Twelve of 16 major peers rose against the U.S. currency, with the euro strengthening 0.4 percent to $1.4642.

The S&P 500 rose for the fourth time in five days, erasing yesterday’s decline. Industrial companies rose 1.8 percent as a group to lead gains among all 10 of the index’s main industries. Ford, the second-largest U.S. carmaker, climbed 2.4 percent after first-quarter profit grew 22 percent to the most in the period since 1998 amid higher prices for fuel-efficient models.

3M Co. (MMM) said it had first-quarter profit of $1.49 a share, topping the average analyst estimate of $1.44 a share. The stock rose 1.9 percent. UPS, the world’s largest package-delivery company, climbed 0.9 percent after also boosting its full-year forecast amid increasing demand for international shipping.

Improving Confidence

Stocks extended gains after confidence among U.S. consumers increased more than forecast in April, signaling the improving labor market is helping Americans weather rising fuel costs. The Conference Board’s confidence index rose to 65.4 from a revised 63.8 reading in March. The median forecast of economists surveyed by Bloomberg News projected an advance to 64.5.

Treasury two-year note yields lost three basis points to 0.61 percent, the lowest level in more than a month, even after the U.S. sold $35 billion of the securities at a higher-than- forecast yield. The notes drew a yield of 0.673 percent, compared with a forecast of 0.669 percent in a Bloomberg News survey of 8 of the Federal Reserve’s 20 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with amount of securities offered, was 3.06, below the 3.42 average at the past 10 sales.

Five stocks climbed for every two that fell in the Stoxx Europe 600. UBS AG (UBSN), Switzerland’s largest bank, rallied 3.9 percent after attracting the highest wealth management inflows since the end of 2007 in the first quarter. Parmalat SpA (PLT) jumped 11 percent after Groupe Lactalis bid for holdings in Italy’s biggest dairy company it doesn’t already own.

China Slumps

The MSCI Emerging Markets Index was little changed after China’s Shanghai Composite Index slid 0.9 percent. Industrial & Commercial Bank of China Ltd. lost 0.3 percent in Hong Kong after the world’s largest lender by market value and three rivals were told last month to maintain capital adequacy ratios of at least 11.8 percent in 2011, one person said, declining to be identified as the plan isn’t public. Agricultural Bank of China Ltd., the nation’s fourth biggest, should target 11.7 percent, two people said.

Yields on government securities from Greece, Ireland and Portugal reached records amid speculation the heavily indebted nations won’t be able to avoid restructuring. Costs to insure Greek and Portuguese debt climbed to records.

The yield on Irish two-year government notes climbed to a euro-era record of 12.09 percent. Portuguese two-year yields touched a euro-era record of 11.74 percent.

The yield on Greece’s 10-year bonds rose as much as 47 basis points to 15.38 percent. Greece’s 2010 budget gap was 10.5 percent of gross domestic product, more than a percentage point wider than the government estimated, according to figures from Europe’s statistics agency today.

Credit-default swaps on Greek government bonds increased 13 basis points to 1,345 basis points and Portuguese swaps climbed six basis points to 666.