Birinyi ‘five years late’ on bold call: Investor – 08-04-15

Salient to Investors:

Rich Weiss at American Century Investments said no one expects real economic growth in the US so Laszlo Birinyi’s prediction of 3200 on the SPX comes 5 years late. Weiss said GDP growth of 3% or less and possible Fed tightening does not support such a rise.

Mark Luschini at Janney Capital Mgmt does not see a 3200 SPX coming through earnings growth, and the market is better defined as sideways than up or down.

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Investors Keep Faith in U.S. Stocks as Dip Gives Buy Sign – Bloomberg 07-11-1

Salient to Investors:

  • Craig Hodges at Hodges Small Cap Fund said any slump in the market will be temporary and a buying opportunity as there is still a lot of money on the sidelines. Hodges is 10 percent in cash, and likes airlines.
  • Greg Taylor at Aurion Capital Mgmt said they are getting their buy tickets ready.
  • Raymond James says equities are vulnerable.
  • Citigroup is concerned about a severe pullback.
  • Douglas Ramsey at Leuthold said they are cutting stock holdings in tactical funds to 60 percent from 65 percent on expectation of a 6 to 8 percent correction this summer before the market resumes later in 2014.
  • Mark Luschini at Janney Montgomery Scott said over the long-term equities are supported by an expanding economy and improving labor market, and there is still too much sideline cash at too many under-invested institutional investors that would quickly put a floor under equities.
  • The S&P 500 is at 18 times earnings, the highest since 2010.
  • The S&P 500 put/call ratio is 2.1, the most since 2008. The VIX call-to-put ratio of 3.7 is the highest since before the financial crisis.
  • The median economists predicts half2 GDP will grow 3.1 percent.

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Gold to Coffee Drive Bullish Bets to 17-Month High – Bloomberg 02-25-14

Salient to Investors:

Hedge funds’ net-long positions of 18 US-traded commodities rose 18 percent last week to the highest since September 2012. Investors tripled the net-long position in arabica coffee this month to the most bullish since May 2011

Barclays said weather is the big driver of commodities.

EPFR Global data show commodity funds are headed for the first monthly inflows since September 2013.

Brazil is having its weakest rainy season in decades, just when moisture is needed the most for coffee tree roots to absorb soil nutrients.

Rabobank Intl said yields and quality for arabica beans will be constrained during this season and the next, and prices will be supported by longer-term concern that output will be limited.

Rabobank said soybean production in Brazil and Argentina is still projected to climb 10 percent, even with the dry weather. The USDA said corn and soybean harvests in the US in 2014 will be the biggest ever, meaning an increase in stockpiles before 2015’s harvest.

Dan Cekander at Newedge USA said grain fundamentals themselves do not suggest a bull story – not without a significant Northern Hemisphere problem in 2014.

Goldman Sachs said the S&P GSCI Enhanced Commodity Index will fall 4.3 percent in the next 12 months, agriculture will decline 9 percent, and precious metals will fall 14 percent.

Gold bets climbed 31 percent to the highest since October 29.

David Mazza at State Street Bank & Trust said assets in the SPDR Gold Trust are heading for the first monthly inflow since December 2012.

Cameron Brandt at EPFR Global said commodity funds are heading for their first monthly inflows since September.

Mark Luschini at Janney Montgomery Scott said the decline in prices last year has helped re-establish equilibrium between supply and demand, so better growth should pull industrial commodities higher, though we are not back in the middle of a commodities super cycle yet.

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Bull Market Has Years Left for Shaoul on S&P 500 Values – Bloomberg 01-06-14

Salient to Investors:

  • Wall Street strategists are the most cautious in almost a decade. The average of 20 estimates predicts the S&P 500 will rise 5.8 percent in 2014 versus the average projection of 11 percent over the last 5 years. The mean estimate is 1,955.
  • 116 S&P stocks are predicted to fall in 2014, the largest number of bearish forecasts in 9 years. The average index stock will rise 4.8 percent, the least optimistic forecast since 2004.
  • S&P 500 earnings will climb 9.7 percent in 2014, almost double 2013, as sales increase 3.8 percent versus 2.2 percent in 2013 and the economy expands 2.6 percent in 2014 versus 1.7 percent in 2013.
  • More than 90 percent of S&P Index stocks and 85 percent of Russell 3000 Index stocks rose in 2013.
  • Since 1936, the S&P has risen 69 percent of the time following quarters when P/E valuations widened.
  • The S&P’s P/E ratio rose in 3 of the 4 quarters in 2013, the first time since 2008.
  • In the 156 quarters since 1936 that the S&P multiple rose, the index itself rose 108 times by an average 3 percent over the next 3 months, versus an average gain of 1.9 percent in all 308 quarters.
  • Bloomberg data show the S&P rose 13 percent in 2010 after 427 companies increased in 2009, 27 percent in 1998 after 402 stocks rose in 1997, and 20 percent in 1996 after 434 stocks rallied in 1995.

Strategas Research Partners said the S&P 500 average return is 14 percent in years where over 400 Index stocks climbed and since 1990, US stocks have never retreated after gains were as widespread in 2013.

Michael Shaoul at Marketfield Asset Mgmt said a sign that things are becoming more popular is they are more expensive and expects the bull market to continue for another 2 to 3 years as nothing happened in 2013 to halt the rally in equities.. “Where we are right now, the fundamentals are good, the earnings are really there and they’re likely to accelerate in a couple of key sectors,” Shaoul said. “There’s risks in this equity market, but they’re largely exogenous.”

Mark Luschini at Janney Montgomery Scott said a lot of the breadth in 2013 was driven by the start of the rotation from bond funds to equity funds, and it is bullish that there is not an exceedingly narrow list of companies driving the market.

ICI and Bloomberg data show equity funds attracted more than $160 billion in 2013, the most since 2000, and versus $80 billion in withdrawals from bond funds.

Brian Belski at BMO Capital Markets said in December that the market is not grossly overvalued but for the rally to continue it must have earnings growth. Belski predicts the S&P 500 will rise 2.8 percent to 1,900 by the end of 2014.

Barry Knapp at Barclays predicts 1900 at year-end 2014 because the market has already accounted for improving earnings.

Tobias Levkovich at Citigroup raised his target to 1,975 in December but says increased volatility may lead to a 10 percent drop during half1.

Tim Hartzell at Sequent Asset Mgmt said 2014 is going to be a thin year in stocks as the Fed has already announced that they are removing the punch bowl, so start trimming stocks and moving into bonds and gold.

Walter Todd at Greenwood Capital said 2013 was really just a return of confidence, and the economy picking up steam bodes well for earnings and multiples, predicting the S&P 500 may climb 10 percent to 15 percent in 2014.

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Buybacks to Dividends at Risk With Record-Low Yields Ending – Bloomberg 09-03-13

Salient to Investors:

Higher debt costs will reduce buybacks and dividend increases.

Borrowing costs for S&P 500 companies fell to 1.4 percent of sales the last 12 months, a record low in 11 years of data. Corporate bond yields are increasing the most since 2009 and are at 4.3 percent versus the 5.7 percent average since the start of the financial crisis and 6.9 percent average in the decade before the start of the bull market.

Paul Zemsky at ING Investment Mgmt said part of the profitability story will start eroding and will have more of an impact on financial transactions, like buybacks and dividends.

The median economist expects the Fed to taper in September.

Birinyi Associates said authorized US stock buybacks reached a 6-year high of $505 billion so far in 2013 after more than $1.7 trillion of repurchases since 2009, but announcements have slowed to less than $50 billion in each of the past two months versus over $68 billion average in 2013 thru June. Repurchases dropped 3.2 percent to $118.5 billion in 2003, the last year before the Fed started raising rates.

The 100 stocks in the S&P 500 with the most buybacks relative to market value have beaten the index since March 2009, advancing 236 percent versus 141 percent for the benchmark.

Companies that increased dividends every year for the last 25 years rose 169 percent in this bull market. The dividend yield on the S&P 500 averaged 2.12 percent for the 12 months through May, 0.38 percentage points higher than the 10-yr Treasury.

Earnings per share for S&P 500 companies were over $100 a share in 2012 versus $60 in 2008 as net income rose faster than sales, margins expanded for 9 straight quarters from 2009 through 2011, and interest expense fell to 1.4 percent of sales in the last 12 months versus 2.4 percent in September 2012.

Profit expansion slowed to an average 4.2 percent the last six quarters versus the 28 percent mean during 2010 and 2011.

Kevin Caron at Stifel Nicolaus said with profitability close to peak levels, to get earnings to rise further, who else are you going to fire? What else are you going to cut? Caron said the trillion-dollar question is what drives the rally from here?

James Paulsen at Wells Capital Mgmt said when the Fed starts raising rates, and suddenly all the Armageddon stories are no longer, greater confidence in the economy would lead to an acceleration of corporate activity into capital investment. and by the time rates get back to normal, US executives will want to reinvest in their business instead of buying stock.

Analysts project S&P 500 earnings will growing at 10.6 percent in 2014 and 2015, or twice the pace of 2013.

P-E ratios for the S&P 500 rose to 16 times earnings in the last 12 months, versus the average of 15.5 times since March 2009, 18.8 times mean in the 2002-2007 rally, and 28.1 times in the last two years of the 1990s.

The most indebted companies in the S&P 500, which had beaten the index by 6 percentage points through May, have declined 3 percent in the last 3 months, versus a 0.1 percent gain in the Index.

Mark Luschini at Janney Montgomery Scott said companies should have locked in record-low borrowing costs by now, and if they haven’t taken advantage of this window of low rates already, shame on them.

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Rate Surge With Rising U.S. Confidence a Positive Sign – Bloomberg 08-20-13

Salient to Investors:

James Paulsen at Wells Capital Mgmt said concern that a surge in US bond yields will curb US growth is overblown because higher borrowing costs coupled with gains in confidence are a healthy sign for the economy. Paulsen said confidence is at the center of everything here and that since 1967, stocks have risen at a 12.8 percent annualized rate in months when bond yields and the Conference Board’s consumer confidence measure rise in tandem, and when borrowing costs increase and confidence drops, stocks have fallen at a 6.4 percent rate.

Adrian Miller at GMP Securities said the back-up in interest rates is not yet at a level that would creep into the psyche of the consumer as being a problem.

Drew Matus at UBS Securities said bond yields and equities are going up because the economy is doing well, not necessarily because of expectations of what the Fed may or may not do.

Freddie Mac report the national average 30-yr fixed mortgage rate was 4.40% last week.

Mark Luschini at Janney Montgomery Scott said a fundamental underpinning to this recovery has been the recovery in the housing market, so rising rates could choke rising household net worth and be counter productive for the Fed.

Joseph Carson at AllianceBernstein said since 1960, only 8 times has the ISM index seen comparable out-sized gains in production and orders that did not reflect rebounds from sharp declines a month earlier: 6 occurred in the very early stages of an economic recovery following a recession, and in all cases GDP picked up over the next year. Carson said the unexpectedly strong manufacturing survey, which usually signals the start of the cycle, is surprising given we are in the fifth year of this cycle. Carson said the recent jump in interest rates reflects reassessment of both economic performance and the Fed’s intentions.

The Citigroup Economic Surprise Index reached the highest level of the year.

Stephen Stanley at Pierpont Securities said we have not seen the disaster that some had feared and now the Fed has the opportunity to taper and the market is prepared for it.

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Hedge Funds Raise Gold Bets as Goldman Sees Decline: Commodities Bloomberg 07-29-13

Salient to Investors:

Hedge funds et al increased their net-long position in gold futures and options for the 4th consecutive week and the longest streak since October, while more than doubling bets on lower corn prices to a record net-short holding.

Jeffrey Currie et al at Goldman Sachs said gold will decline to $1,050 by the end of 2014 as the US economy improves, prompting less accommodative monetary policy.

Mark Luschini at Janney Montgomery Scott said buyers expect tapering to begin later than many anticipated.

IMF said Russia and Kazakhstan expanded their bullion reserves for a 9th straight month in June, and the World Gold Council said central banks will buy 400 metric tons in 2013, after adding 535 tons in 2012, the most since 1964.

Donald Selkin at National Securities Corp said resistance from people who got caught before will limit further upside and wait to see what the Fed will do.

Mining companies announced at least $15 billion of write-downs in the past 2 months.

John Paulson at PFR Gold Fund said accelerating inflation is a risk reiterated his commitment to buying gold and gold producers as a hedge against currency debasement as central banks pump money into economies.

Goldman pared its 12-month commodity-return forecast to 0.1 percent on July 22: agriculture and precious metals will lead declines.

Net-long positions in crude oil climbed to the highest since the CFTC data begins in June 2006.

Barclays expects copper supplies to exceed demand by 107,000 tons in 2013 and 387,000 tons in 2014.

Corn holdings are the most bearish since data began in 2006. US government forecasts American farmers will harvest record crops.

Jeff Sica at Sica Wealth Mgmt said supplies are high in many commodities amid economic slowdown that is accelerating worldwide.

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Euro Crisis Hits Profits Globally as P&G Cuts Forecast – Bloomberg 06-25-12

Salient to Investors:

Europe’s debt crisis is pressuring global earnings.

Analysts predict S&P 500 companies will report a 1.1 percent average drop in Q2 earnings, the first decline in 11 quarters and after a 6.2 percent average increase in Q1. A stronger dollar threatens earnings as U.S. exports become more expensive.


Tim Ghriskey at Solaris Group doesn’t expect favorable corporate outlooks given Europe and slowing growth in the U.S. and China.

Mark Luschini at Janney Montgomery Scott said Philip Morris is a canary in the coal mine for many companies who will use currencies as an excuse for declining profit.

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U.S. Stocks Gain Amid Speculation of More Fed Stimulus – Bloomberg 06-12-12

Salient to Investors:

Bank of America  survey said optimism among global asset allocators has fallen back to the lows of autumn 2011:, equity holdings have been reduced to underweight for the first time in seven months, cash raised to the highest level since 2008 and third-highest level on record.


RBC Capital Markets said the S&P 500 is mired in a bottoming phase after this year’s best weekly rally failed to reverse the downtrend in cyclicals.

Janney Montgomery Scott’s Mark Luschini said pessimism is so high that the prospect of any relief will jump-start a rally – investors are desperate for continued liquidity injections.

Fitch said Spain will significantly miss its budget deficit targets.

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