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Case Study: IBM Stock Buybacks and Debt Issuance

Courtesy of Doug Short.

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.


There are a lot variables regarding IBM’s debt issuance, maturation, servicing, and rollover that I simply do not have time to fact check. The reason for the IBM case study is not to be wholly accurate, but to place IBM’s current stock buyback and debt issuance programs in context with abnormally low Fed fund rates today juxtaposed against a backdrop of higher future interest rates in 2017-2019 and the recent back up in Treasury yields at the short end of the yield curve as the Fed telegraphs a higher Fed funds rate sometime in 2015.

Why do this? Because we want to overlay IBM’s stock buyback and Debt Issuance with the NY Fed models assuming “excess high returns” for the US stock market through 2018 and the GMO (Grantham, Mayo, & Otterloo) 7 year expectancy models at 2013 year end assuming negative US equity returns through 2020 year end. I am going to postulate in what follows that both models can be right, and further that much of the “excess high returns” forecast by the NY Fed are already behind us. It is important to note that the NY Fed models were written in early 2013 before the US stock market rallied an additional +20%. The GMO 7-year expectancy models was generated after that 20%+ US stock market rally in 2013.

IBMs stock buyback program began well before Q1 2012, so the information conveyed by ZH below is incomplete (For instance, IBM’s Cash Flow statement shows 12.6b stock buybacks in 2011 vs 12.8b stock buybacks in 2013) . Nor do we know much about its debt issuance program before Q1 2012. In particular, we don’t know when this new debt issuance will need to be rolled over. But, we do see a lot of 5 year corporate debt issuance. Assuming a 5 yr rollover, beginning in 2017 and extending through 2019, IBM will need to rollover about 31b in debt just from the 2012-2013 time series. The bulk of that new debt will likely need to be rolled over at end of 2018-2019. This will be rolled over at higher rates, as the FOMC believes the path trajectory for the Fed funds rate will climb to 150bps by end of 2016. Beginning in…
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A New Look at the Total Return Roller Coaster

Courtesy of Doug Short.

Note from dshort: I received a recent email requesting an update to my Total Return Roller Coaster series. I’ve now updated the charts below based on monthly data through the March close.


Here’s an interesting set of charts that will especially resonate with those of us who follow economic and market cycles.

Imagine that five years ago you invested $10,000 in the S&P 500. How much would it be worth today, with dividends reinvested but adjusted for inflation?

The purchasing power of your investment has increased to $26,567 for an annualized real return of 19.70%.


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Had I posed the same question in March 2009, the answer would have been a depressing $5,521. The -5.93% real return would have cut the purchasing power of your initial investment nearly in half.

Fun Runs of the Roller Coaster

Let’s increase the timeframe to 10 years. Strangely enough, the annualized return is slightly worse. Your $10K has grown to a little over $16K adjusted for inflation, an annualized real return of 4.87%.

 

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The 15-year timeframe is quite disappointing. Your one-and-a-half decade investment of $10K has only grown to about 13.4K adjusted for inflation for a measly annualized real return of 1.94%.

 

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If we extend our investment horizon to 20 years, the roller coaster is less volatile with higher lows and lower highs.

 

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Joe Friday: This took place in 1987, 2000 and Now

Courtesy of Doug Short.

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.


The lower section of the chart below measures five-year rolling performance of the S&P 500. This great chart comes from Shortsideoflong.com.

In the past 50-years, five-year rallies of 170% or more have only taken place in 1987 and 2000.


 

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Joe Friday: “The five-year rolling performance is hitting this line for the third time in 50 years at the same time it is hitting some resistance lines tied to key price points dating back 30 years.”


For information about Kimble Charting Solutions, send an email to services@kimblechartingsolutions.com.

 

 

 

 





Australian stock market warning

Courtesy of Read the Ticker.

australian-stock-market-warningThe Aussie golden canary is looking mighty crook, time for profit taking.UPDATED

More from RTT Tv

Reference:
Australia to enter a very sad period

COMMENTS: Investing in the Aussie stocks, is chasing dimes in front of a rolling bull dozzer, time to find a better place to make a buck.

History may not repeat, but it sure can rhyme. The previous two A-B-C (circled) is what to expect, also notice with the second A-B-C the second ‘B’ double top, very similar to the current pattern.

(See full chart via link referenced above)

AORD



NOTE: readtheticker.com does allow users to load objects and text on charts, however some annotations are by a free third party image tool named Paint.net

Investing Quote…

..”Success in trading means excess of profits over losses. If anyone tells you they can almost be invariably successful, put him down as trying to impose on your credulity.”..

Richard D Wyckoff


..”The first rule is not to lose. The second rule is not to forget the first rule”

Warren Buffett








Historical Market Comparisons Are Meaningless

Courtesy of Doug Short.

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.


As Chief Strategist for STA Wealth Management, I start each and every day by consuming copious amounts of a heavily caffeinated beverage and a data feed from a litany of web and blog sites. Over the last couple of days in particular, they have been numerous articles on whether the market is currently in a bubble. Here are a few as an example that I just grabbed from RealClearMarkets.com:


Is This a Bubble Market? There’s One Way to Tell

Is Financial Media Warding Off Stock ‘Bubble’?

The Upside of Speculative Market ‘Bubbles’

Yellen: Bubbles? What Bubbles?

Well, you get the idea. First of all, bubbles only occur when no one is looking for them. Bubbles form when greed runs rampant and there is a mass hypnotic state that the current ride will never end. The shear fact that multitudes of articles are being written about “market bubbles” is a sign that we are likely not there, yet. (Read: Too Much Bubble Talk)

However, as a shot of caffeine hits my brain, I read with interest a recent piece on Bloomberg entitled 5 Reasons We’re Not In a 2000 Bubble Redux, which I have summarized for you:

  1. Volume of IPO’s is less than half of the first quarter of 2000.
  2. First-day returns of IPO’s are just 1/5th of the first 1st quarter of 2000.
  3. Speculative companies carried a 43% higher valuation to dividend paying companies in 2000 versus just 26% today.
  4. Cash derived from equity issuance was 20% in 2000 versus just 11% today.
  5. Share turnover in 2000 was an annualized 89% rate versus 58% today.

While these are certainly some interesting arguments, the comparison between now and the turn of the century peak is virtually meaningless. Why? Because no two major market peaks (speculative bubble or otherwise) have ever been the same. Let me explain.

In late October of 2007, I gave a seminar to about 300 investors discussing why I believed that we were rapidly approaching the end of the bull market and that 2008 would likely be bad, really bad. Part of that discussion focused on market bubbles and what caused them. The following two slides…
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S&P 500 Snapshot: Best Weekly Gain Since July of Last Year

Courtesy of Doug Short.

The pre-market announcement of new jobless claims continues to beat expectations with its four-week moving average now the lowest since early October of 2007, two months before the last recession. Despite the good claims number, the S&P 500 opened fractionally lower with some options expiration volume and sold off to its modest -0.30% intraday low 25 minutes later. The index slowly recovered to its 0.39% intraday high early in the final hour of trading. It closed with a trimmed gain of 0.14%, the fourth day of gains and a hefty 2.71% advance for the holiday-shortened week — the best weekly since the week after Independence Day in 2013.

The yield on the 10-year note finished at 2.73%, up 8 bps from yesterday’s close and 13 bps off the 2014 low of 2.60%.

Here is a snapshot of the four-day week.

Here is a daily chart of the SPY ETF. Although many commentators have warned of growing market exuberance, a look at the volume bars shows that trading has generally been much higher on declines.

The S&P 500 is now up 0.89% for 2014.

Here is a longer perspective, starting with the all-time high prior to the Great Recession.

 

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For a better sense of how these declines figure into a larger historical context, here’s a long-term view of secular bull and bear markets in the S&P Composite since 1871.

 

 

 

 





If The Smart Money Is Selling, Who’s Buying?

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Based on Bloomberg's Smart Money Flow indicator, there is a very significant amount of distribution going on… the question is just who is soaking up the smart money selling? Company buybacks, Johnny 5, or a greater-fool retail investor?

 

 

Perhaps this chart from Lance Roberts at STA Wealth provides some color for who?

 

However, the idea that individual investors are still "out of the market" should be taken with a bit of caution. The chart below is data compiled by the American Association of Individual Investors (AAII) which surveys it membership on portfolio allocation.  The data is compiled and released monthly. 

 

 

With cash hovering at the lowest levels since the "Tech Wreck," and equity exposure at the highest, investors are more than just "warming up" to equities. They are effectively "all in" with respect to the financial markets.

Chart: Bloomberg

 





Gold Forecast & How To Momentum Trade Gold Stocks

Gold Forecast & How To Momentum Trade Gold Stocks

Back on April 9, I posted a short tutorial on how to momentum trade gold along with my short term gold forecast.

I received great feedback from gold market traders taking advantage of my insights last week, so I created a follow-up video.

This video:

  1. shows how and why our strategy works better with gold stocks and silver stocks, and
  2. provides my short term gold forecast so we can stay on the right side of the market next week.

[Be sure to watch my major long term Gold Forecast also.]

 

 

Get My Gold Forecast & Gold Trade Alerts: www.TheGoldAndOilGuy.com

Sincerely, Chris Vermeulen Founder of Technical Traders Ltd. – Partnership Program





Philly Fed Business Outlook Again Beats Forecast

Courtesy of Doug Short.

Note from Doug: Having lived for two wonderful years in Paoli, PA, a suburb west of Philadelphia just south of Valley Forge, I have a special interest in this regional indicator. But, more importantly, it gives a generally reliable clue as to direction of the broader Chicago Fed’s National Activity Index.


The Philly Fed’s Business Outlook Survey is a monthly report for the Third Federal Reserve District, covers eastern Pennsylvania, southern New Jersey, and Delaware. The latest gauge of General Activity came in at 16.6, an increase from last month’s 9.0. The 3-month moving average came in at 6.4, up from 4.0 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. However, today’s six-month outlook at 26.6 is the lowest in 12 months.

Here is the introduction from the Business Outlook Survey released today:

Manufacturing activity in the region increased in April, according to firms responding to this month?s Business Outlook Survey. The survey?s broadest indicators for general activity, new orders, shipments, and employment all remained positive and increased from their readings in March. Price pressures remain modest. The survey?s indicators of future activity reflected optimism about continued expansion over the next six months, although the indicators have fallen from higher readings in recent months. (Full PDF Report)

Today’s 16.6 came in above the 10.0 forecast at Investing.com.

The first chart below gives us a look at this diffusion index since 2000, which shows us how it has behaved in proximity to the two 21st century recessions. The red dots show the indicator itself, which is quite noisy, and the 3-month moving average, which is more useful as an indicator of coincident economic activity. We can see periods of contraction in 2011 and 2012 and a shallower contraction in 2013. The indicator is now off its post-contraction peak in September of last year.

 

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In the next chart we see the complete series, which dates from May 1960. The…
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How Long to the Next Recession? iM’s Weekly Update

Courtesy of Doug Short.

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.


The BCI remains unchanged from last week?s upward revised level of 169.2. BCIg, the smoothed annualized growth of BCI, is slightly down at 16.9 from last week’s upward revised 17.0. This week?s BCI shows no recessionary trends.

Figure 1 plots BCIp, BCI, BCIg and the S&P500 together with the thresholds (red lines) that need to be crossed to be able to call a recession.

The off-peak indicator BCIp is at 99.9 and at this level the BCIw graphic with the tracks to recession is not applicable.

The BCI, BCIp and BCIw are described in article 1, article 2 and article 3 respectively. Historic values of BCI, BCIg and BCIp can be downloaded from the author’s website.

Apart from the weekly Business Cycle Index, updates of a number of weekly and monthly financial macro models are also available on the website.


Anton Vrba and Georg Vrba
iM imarketsignals.com

Anton Vrba is an electrical engineer. He pursued a career in R&D, manufacturing and construction project management. He developed the iMarketSignals’ proprietary Business Cycle Index (BCI) and the authors’ website. His other interests are mathematics and physics. He is a lateral thinker and has many ideas that challenge the established and accepted explanations.

Georg Vrba is a professional engineer who has been a consulting engineer for many years. In his opinion, mathematical models provide better guidance to market direction than financial “experts.” He has developed financial models for the stock market, the bond market, yield curve, gold, silver and recession prediction, all published in Advisor Perspectives. The models are updated weekly at http://imarketsignals.com/.

 

 

 

 





 
 
 

Chart School

Dow Jones Industrial Average Rallies Again

Courtesy of Doug Short.

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

The Dow Jones Industrial Average and other major U.S. stock indexes stage another rally.

The Dow Jones Industrial Average (NYSEARCA:DIA) dipped slightly going into the Easter Holiday weekend but gained 2.4% for the week as the sideways trading range continues.

The S&P 500 (NYSEARCA:SPY) added 2.7% for the week while the Nasdaq Composite (NYSEARCA:QQQ) climbed 2.4% on the week.

The Russell 2000 (NYSEARCA:IWM) also gained, adding more than 2% for t...



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Phil's Favorites

"Low Inflation has Positive Impact and Helps Spain's Competitiveness" Says Economy Minister

Courtesy of Mish.

Luis de Guindos, Spain's Economy Minister, sings the praises of low inflation.

Via translation from El Economista, please consider Economy Minister Says Deflation Has "Positive Impact".
James Daniel, Spain's mission advisor to the IMF, said that inflation close to zero in the country increases the burden of debt and real interest rates and difficult to reduce unemployment.

Daniel's words contradict the perception Luis de Guindos, the Spanish Minister of Economy and Competitiveness, who also said today at a press conference that low inflation "is having a positive impact" and help the c...



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Zero Hedge

Donetsk "Letter To Jews" Found To Be A Forgery

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

In the days before the Geneva "de-escalation" conference (and coincidentally, days after the secret visit of CIA director Brennan to Kiev), the top story across western media was the "undisputed" proof that east-Ukraine, populated by "terrorist separatists", is preparing to unleash a neo-nazi wave against local jews, when a leaflet was unveiled, beckoning the Jewish population to register and declare their assets.

The ...



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Stock World Weekly

Stock World Weekly

Newsletter writers are available to chat with Members regarding topics presented in SWW, comments are found below each post.

Here's this week's Stock World Weekly. Click here and sign in with your PSW user name and password, or sign up for a free trial.

...

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Market Shadows

Canary In the Yen Shaft: $10 trillion JGBs; No Bids!

Two guest authors, David Stockman and long-time contributor John Rubino, write about the current state of Abenomics. 

Canary In the Yen Shaft: $10 trillion JGBs; No Bids!

By  

This one matters a lot. Abenomics was predicated on a lunatic notion—namely, that the economic ills from Japan’s massive debt overhang could be cured by a central bank bond buying spree that was designed to be nearly 3X larger relative to its GDP than that of the Fed. Yet anyone with a modicum of common sense and market...



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Option Review

Wild Ride For Chipotle

Shares in Chipotle Mexican Grill Inc. (Ticker: CMG) opened higher on Thursday morning, rising more than 6.0% to $589.00, after the restaurant operator reported better than expected first-quarter sales ahead of the opening bell. But, the stock began to falter just before lunchtime on concerns the burrito-maker will increase menu prices for the first time in three years. The price of Chipotle’s shares have since fallen into negative territory and currently trade down 3.5% on the session at $532.89 as of 1:50 p.m. ET.

Chart – Shares in Chipotle cool by lunchtime

...

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All About Trends

Mid-Day Update

Reminder: David is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Sabrient

What the Market Wants: Positive News and Stocks at Bargain Prices

Courtesy of David Brown, Sabrient Systems and Gradient Analytics

Last week’s market performance was nasty again, especially for the Small-cap Growth style/cap, down 4%.  Large-caps faired the best, losing only 2.7%.  That’s ugly and today’s market seemed likely to be uglier today with escalating tensions over the weekend in Ukraine. 

But once again, positive economic trumped the beating of the war drums. Retail Sales jumped up 1.1% over a projected 0.8% and last month’s tepid 0.3%, which was revised up to 0.7%.  While autos led, sales were up solidly overall.  Business inventories were about as expected with a positive tone.  Citigroup (C) handily beat estimates to add to the morning’s surprises.  As a result, the market was positive through most of the day, led by the DJI, up 0.91%, and the S&P 500, up 0.82%.  NASDAQ had a less...



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Digital Currencies

Facebook Takes Life Seriously and Moves To Create Its Own Virtual Currency, Increases UltraCoin Valuation Significantly

Courtesy of ZeroHedge. View original post here.

Submitted by Reggie Middleton.

The Financial Times reports:

[Facebook] The social network is only weeks away from obtaining regulatory approval in Ireland for a service that would allow its users to store money on Facebook and use it to pay and exchange money with others, according to several people involved in the process. 

The authorisation from Ireland’s central bank to become an “e-money” institution would allow ...



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OpTrader

Swing trading portfolio - week of April 14th 2014

Reminder: OpTrader is available to chat with Members, comments are found below each post.

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here...



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Promotions

See Live Demo Of This Google-Like Trade Algorithm

I just wanted to be sure you saw this.  There’s a ‘live’ training webinar this Thursday, March 27th at Noon or 9:00 pm ET.

If GOOGLE, the NSA, and Steve Jobs all got together in a room with the task of building a tremendously accurate trading algorithm… it wouldn’t just be any ordinary system… it’d be the greatest trading algorithm in the world.

Well, I hate to break it to you though… they never got around to building it, but my friends at Market Tamer did.

Follow this link to register for their training webinar where they’ll demonstrate the tested and proven Algorithm powered by the same technological principles that have made GOOGLE the #1 search engine on the planet!

And get this…had you done nothing b...



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Pharmboy

Here We Go Again - Pharma & Biotechs 2014

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

Ladies and Gentlemen, hobos and tramps,
Cross-eyed mosquitoes, and Bow-legged ants,
I come before you, To stand behind you,
To tell you something, I know nothing about.

And so the circus begins in Union Square, San Francisco for this weeks JP Morgan Healthcare Conference.  Will the momentum from 2013, which carried the S&P Spider Biotech ETF to all time highs, carry on in 2014?  The Biotech ETF beat the S&P by better than 3 points.

As I noted in my previous post, Biotechs Galore - IPOs and More, biotechs were rushing to IPOs so that venture capitalists could unwind their holdings (funds are usually 5-7 years), as well as take advantage of the opportune moment...



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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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