1/6/14…another way of looking at stock valuations

Quote of the Day from the Friars Club Encyclopedia of Jokes: “Never put off until tomorrow what you can forget about entirely.” – unattributed

Bloomberg Quote of the Day: “Life is what happens to you while you’re busy making other plans.” – John Lennon…and as he found out…so is death!

Next week’s economic calendar is packed with important indicators. The highlight of the week will be the December ISM Non-Manufacturing Survey (Monday) and December Employment Situation report (Friday). We will also get November Factory Orders (Monday), November International Trade (Tuesday), December ADP Employment and November Consumer Credit (Wednesday) and November Wholesale Trade (Friday). In addition, the Federal Reserve will release the minutes to the December 17th–18th FOMC Meeting on Wednesday. Courtesy of Economic Advisory Service

Bloomberg Top Stories:

*Emerging-Market Stocks Decline as Yen Rallies With Treasuries; Gas Climbs

*U.K. Services Growth Unexpectedly Cooled in December for Second Month – !!!

*T-Mobile Agrees to Purchase $2.4 Billion of Wireless Capacity – can you hear me now?

*Bull Market Has Two more Years for Shaoul as S&P Valuations Surge 19% – ya sure!

*Global Central Banks Splitting on Stimulus in 2014 as Fed Tapering Looms – too early!

*Men’s Wearhouse Takes Raised $1.6 Billion Jos. A. Bank Offer to Investors – As the ousted founder would say: “I guarantee it.” Hit that bid! How does Bank do it? Dunno

*Euro Zone’s Jobless Scourge Seen Defying Leader’s $163 Billion Growth Push

*Lloyds Bonds in Biggest Gains as Balance Sheet Shrinks  cuts good for bonds but…

*Dirtiest Coal Embraced in Europe Flattens Mideval Towns for Cheaper Powers

*Bill Clinton Pitches KKR-Backed College Chain as Global Controversy Mounts

*’Polar Pig’ Threatens U.S. With Lowest Temperatures in Almost Two Decades – !!!

*Iraq Poised to Start Attack to Retake Fallujah From Al-Qauda-Linked Forces – a fine mess we got them into this time, didn’t we, Dubya? Happens when you don’t have a plan!

*Marijuana Prices Soar as New Colorado Retailers Roll Out the Green Carpet – oh boy!  

Friday’s Market Summary:

Note: see commentary below for more data on indices and earnings estimates for segments.

No new info of value from Friday’s trading. Dow Transports and Russell 2000 took honors at up 0.5%, while Dow Utilities were off 0.3% vs -1.6%. The gains however weren’t even of the ‘dead cat’ variety as they were only about a third of Thursday’s loss…hmmm. S&P 500 was flat (3 of last FIVE sessions?!?), while the Dow rose a puny 0.2% and the two Nasdaq

were the goats off 0.3% and 0.7% respectively, the 100 suffering from too many Apples eating it – like man bites dog!

NYSE Volume fell back to 2.76B, not a good thing on a mixed day vs 3.06B on the bigger down day. Real NYSE Volume fell back to 544M shares vs 624M…call it an absence of retail!

Breadth and Advance/Declines were modestly positive on both NYSE and Nasdaq. The VIX however, declined slightly for the first time in foursession and from a 14 handle to 13.82.

The Nasdaq 100 LOST 25 points (9.7 from Apple vs -6.4), vs -28 vs +22 (5 from Apple). Breadth was negative 2:1 vs -6:1 vs +3:1. This was again very broadbased. Six members lost more than an .8 index points, no gainers of anywhere near a point.: APPL -9.7!!! vs -6.4! vs +5.3! vs -2.6 vs -3 vs -2; GOOG -2 vs -1.9 vs +2.8 vs -2.2; MSFT -1.9 vs -2 vs +1; GILD -1.2; BIDU -1.2; AMGN -0.8 vs +1.1 vs -0.9.

Dow 30 +0.2% vs -0.8% vs +0.4% vs +0.2% vs –; Dow Transports +0.5% vs -1.5%! vs +0.7% vs — vs -0.2%; Russell 2000 +0.5% vs -1.1%! vs +0.3% vs – vs -0.1%; Dow Utilities -0.3% vs -1.6%! vs +0.3% vs +0.3% vs +0.2%; S&P 500 – vs -0.9% vs +0.4% vs – vs –; Nasdaq Composite -0.3% vs -0.8% vs +0.5% vs -0.1% vs -0.3%; NDQ 100 -0.7% vs -0.8% vs +0.6% vs -0.1% vs -0.3%.

*NYSE Volume fell to 2.76B shares vs 3.06B vs 2.3B vs 2.27B vs 2.04B. The record high (?) is the 4.97B shares of 12/20/13 and Q3 end of quarter while 11/29’s 1.59B is weakest of 2013). REAL NYSE Volume also fell to a weak 544M shares from a below average 624M vs 568M vs 462M vs 424M, from the new 12-month low of 272M. The average since 12/20 is just 491M shares with a high of 611! The 12 month is 719M shares. Last year there were just TEN 1B+ share sessions! There were 39 800M+ shares in 2013: 18 up, 19 down, three mixed.

*New 52 week highs have ranged from 33-864. They were stable at 217 vs 201! vs 560 vs 346 vs 445 vs 659. Recent high is a super-strong 890!!! New lows halved again to 23 vs 43 vs 78 vs 72 vs 76 vs  60 vs 44 vs 68 vs 81 vs 127 vs 131. Recent high is 353; new low of 23!!!  

  1. Advance/Declines were slightly positive: +1.8x vs -2x vs +1.9x vs -1.1x vs +1.1x (recent range -17.5x to +6x) on NYSE and +1.6x vs -1.8x vs +1.4x vs -1.1x vs -1.1x (recent -4x!!! to +3.8x). Breadth was similar: +1.2x vs -2.1x vs +2.8x vs -1.1x vs +1.6x (recent -18.6x!!! to +7.2x!!!) on NYSE and +1.2x vs -1.4x vs +2.1x vs -1.1x vs -1.4x (recent -12.8x to +6.5x).  
  2. NYSE Financials higher by 0.5% vs -1% vs +0.4% vs +0.1% vs +0.1%. BofA most active: +1.9%??? vs +3.4%??? vs +0.2% vs -0.8% vs +0.1%, closing at $16.41 +.31 – another new 12-month high, highest since 6/1/10. Brokers +0.6% vs -0.4% vs +1.2%! vs -0.2% vs -0.4%; KBW Banks +08% vs -0.5% vs -0.5% vs +0.4% vs –0.2%; Nasdaq Banks +0.2% vs -1.3%!!! vs +0.1% vs -0.4% vs -0.2%.
  3. Volatility (S&P VIX) fell for the first time in four days but remains above the 40/50 day and the 200 day! The range was 13.59-14.22. Week ago Thursday’s 11.69 was lowest since 3/15/13!!! High for prior week was 16.67! The recent range is 11.83-21.01!!! It peaked at 22.79 on 12/28/12…ytd the range is 11.05 (3/14) to 21.92 (6/24)!

Bonds were slightly weaker but gaining it back overnight: 30 yr 3.91 +3/8 – still too close to 4%, while the 10 yr is now 2.97% +3/16, recent high 3.03%! Long TIP closed 1.53% +3/8 vs 1.62%. The (record?) low of 0.36% was set on 4/5. The recent high yield: 1.64%! Libor update: 0.239% 3 mos,0.344% 6 mos. (slight new record lows – again!). Foreign bond yields mixed with problem countries slightly higher after falling for two days, ex-Portugal! Germany 1.91% -3; UK 2.97% -5 from 3.03%!; France 2.53% -2; Italy 3.92% +1; Spain 3.88 +2; Portugal 5.48%!!! -11 vs -17!!!; Greece 8.03% +4 from 7.99%!!! Recent ramge: 7.71%-12.57%. Japan …0.72% -1. Yen continues to boune off multi-year low…105.44…weakest since 10/1/08!!! Currently 104.78 +.27 – session low 104.51!

Gold still rocking in the new year with another rally to $1239.60, highest since 12/18, closing at $1238.60 +$13.40! This from last Tuesday’s low of $1181.40 – A MULTI-DECADE LOW!!!  Recent high is $1375.40 back on 9/19. $1200 is sup/res, and $1300, psychological resistance with major res at the 40 day ($1244!) and the 50 day ($1262!) and falling! The 200 day is $1348. Overnight it is higher at $1240.70 +$2.10 with a high of $1245.70…just above the 40 day!

Crude pummeled yet again – down for the count? Closed at $93.96 -$1.48 – lowest since 12/2!!! Note the session low of $93.86, lowest since the surge of 12/4! Note 12/27 was first time above $100 since 10/21!. On 11/27 it printed a new low of $91.77, lowest since 6/3!!! The record high of $114.83 was on 5/2/11, the low since on 10/4/11 is $74.95: $93.60 is the midpoint!!! Recent rally high and close are $110.70 and $110.53 respectively. It is now below the three key m/a’s which are now major res: 40 day m/a ($96.37), 50 day (96.50), and the 200 day is $99.03 – all rising and major resistance! 4/18’s low of $85.61 was lowest since 12/11! The recent range is $85.61-$112.24 since March 1, 2012. Overnight it is little changed at $94.10 +.14 with a session low of $93.96!

Overnight markets:

European equity markets little changed, Asia mostly weaker, Japan finally open and weak: UK +0.1% vs +0.3% vs -0.1% vs +0.3% vs -0.4%; France -0.1% vs +0.7% vs -0.8% vs +0.5% vs -0.1%; Germany +0.1% vs +0.5% vs -0.4% vs closed vs -0.4%; Japan -2.4% vs closed three days vs +0.7%; Hang Seng -0.6% vs -2.2%!!! vs +0.1% vs +0.3% vs – vs +0.3%; Korea +0.4% vs -1.1%! vs-2.2%!!! vs closed vs +0.5%; India -0.3% vs -0.2% vs -1.2%! vs +0.1% vs -0.2%. U.S. stock futures were higher overnight but plunged back to a negative on the market open: DOW -7 (range 80); SPX -0.50 (9); NDQ -13.50 (25). Stocks opening mixed: Dow +3; Trans -22!!!; Util +0.6; Comp -16!; 100 -15!!!; Russell -2.6. NYSE Financials +17.6??? Go figure???

Some random thoughts:

On Friday, we discussed whether p/e’s are too high…or even sustainable, citing lack of growth of revenues and therefore earnings improvement due to cost-cutting, not sales!

Barron’s this week has an article: Why Profit Forecasts Look Too Rosy. It posits that ‘bottom-up’ forecasts are calling for a 10.5% increased in S&P 500 companies in 2014 to a new record high of $120 per share. Contrast to 2013 which is no track for a 4-5% gain!

Remember, no one in the securities industry is paid to be a bear…not by any Wall Street firm and extrapolation is the name of the game, but this appears to be even more than that. The offer the following table from FactSet Research…it substantiates TB’s theory that earnings growth is not sustainable, let alone improving and how much cost-cutting is still available to them?…of course, they could always increase workers pay but that would cut into that of the CEO, right?…and we most certainly can’t have that happen!

2014 Forecasts 2014 Est EPS  ’14 Revenue Growth
S&P 500



Consumer Discretionary



Consumer Staples















Information Technology












Can you ‘splain it to TB…because it makes no sense to him. Are you in?…or out?

Another article is on using excess cash to fund stock buybacks. It cites history that not only is it usually ill-timed…the last wave being in 2007 causing the market top…but the logical time is for management to do buybacks when the stock is undervalued! Yet a former Goldman banker said the he was rarely successful in getting them to do buybacks to instill confidence! Recall the Asian crisis? Companies were losing their factories yet they could have ‘invested’ in them but instead used their excess cash again for buybacks which makes the hedge funds happy – not long term investors! Why? Immediate gratification. Sooo…same old, same old…

Lastly, here is a report from cited Crestmont Research, you might find of interest:

The initial series of year-end updates to the Crestmont Research website is now available atwww.CrestmontResearch.com . The updates are listed below. Your comments and suggestions are welcomed (Info@CrestmontResearch.com) and often influence future updates and additions.

The next set of updates should be available on January 20th and a final set of updates is expected on or before February 3rd.  If you received this notification directly from Crestmont Research, you will be notified of those and future updates.  If this notification was forwarded to you, please visit the upper-right corner of the home page to sign-up for this complimentary service.

Please note that Crestmont Research maintains the same URL (i.e., the Internet address link) for subsequent updates.  The benefit is that you can link to Crestmont’s website and always have the latest update.  The drawback is that a few computers may be slow to recognize that the file has changed.  In those few cases, the computer will reload the last downloaded file from its cache (internal storage).  If you don’t see the updated version of a chart or article, please try clearing your cache or forcing a reload of the webpage or file.

Today’s updates are listed below.  The most significant points are:

(1) 2013 was a great year for the stock market, and it was not out-of-line for a cyclical bull inside a secular bear: 47% of the years in secular bears have delivered gains; 2013 was the 8th best gain-year among 28 gain-years in secular bears since 1901,

(2) the stock market significantly outran the economy and normalized earnings growth in 2013; by year-end, normalized P/E increased above the typical range for secular bear market tops–the current secular cycle status is undoubtedly a secular bear and cannot be or become a secular bull from the current level of P/E,

(3) all of today’s updates reflect conditions that are consistent with a secular bear market,

(4) secular bull markets deliver above-average returns from (a) P/E expansion and (b) higher dividend yields driven by low starting P/E–today’s relatively high P/E necessarily portends a secular bear period of below-average returns,

(5) the cyclical bull of recent years is typical within secular bears, and may even continue to go farther; however,  volatility declined in 2013–which may indicate the late stage of the current cyclical bull, and

(6) the Jan 1, 2014 update to the recently-published article Half and Half emphasizes the need to adjust investment approach depending upon secular market type, and it explains why it works to “row” with a more actively-managed and diversified portfolio.

If you note more than the usual number of typos, it is 20 below zero as TB writes this, so have a heart…and a great week!



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