Next week is the start of corporate earnings season, alleluia. Remember that this next Thursday is the first annual meeting which will be held in Lenoir. If you are planning to attend, and have not told me as of yet, please let me know. The first section is from Vanguard. The last section is titled Cliff Young, you will enjoy reading how 1 person changed a sport.
Vanguard
The latest economic reports suggest that the U.S. economy is on a knife's edge—growing enough at the moment to stave off recession, but not enough to make a dent in the unemployment rolls, while casting a shadow on the longer-term outlook. The week's closely watched jobs figures illustrated the dilemma: The unemployment rate was unchanged in September at 9.1%, payroll job growth was substantially higher than expected, and previous months' payroll figures were restated upward. Good, but not good enough, say economists. Meanwhile, Ben Bernanke, chairman of the Federal Reserve Board, warned that the U.S. economic recovery was "close to faltering" and urged fiscal action from Congress and the White House. For the week ended October 7, the S&P 500 Index rose 2.1% to 1,155 (for a year-to-date total return—including price change plus dividends—of about -6.7%). The yield of the 10-year U.S. Treasury note increased 18 basis points to 2.10% (for a year-to-date decrease of 120 basis points).
Corporate Earnings Season
The 2nd week of the first month in a quarter starts corporate earnings season. This season goes strong for about 7 weeks until the end of the second month in a quarter. Typically, corporations announce any earning surprises before earnings season begins. So far, it appears that corporate earnings should be good which should provide support for stock prices. I am really looking forward to the next 7 weeks.
Cliff Young
Many runners already know the legendary story of Cliff Young. Every year Australia hosts the Westfield run. A 543.7-mile – (875 kilometers) – endurance run from Sydney to Melbourne. It is considered among the world’s most grueling ultra-marathons. The race takes five days to complete and is normally only attempted by world-class athletes who train specifically for the event. These athletes are typically less than 30 years old and are sponsored by large companies such as Nike.
In 1983, a man named Cliff Young from Beech Forest, Victoria showed up at the start of this race. Cliff was 61 years old and wore overalls and work boots. To everyone’s shock, Cliff wasn’t a spectator. He picked up his race number and joined the other runners. The press and other athletes became curious and questioned Cliff. They told him, “You’re crazy, there’s no way you can finish this race.” To which he relied, “Yes, I can. You see, I grew up on a ranch. We couldn’t afford horses or tractors, and whenever the storms would roll in, I’d have to go out and round up the sheep. We had 2,000 sheep on 2,000 acres. Sometimes I would have to run those sheep for three or four days. It took a long time, but I would always catch them. This race is kind of like herding sheep!”
When the race started, the pro runners quickly left Cliff behind. The crowd and television audience were enter-tained because Cliff didn’t even run properly, he appeared to shuffle. Many even feared for the old rancher’s safety. The professional athletes knew that it took 5 days to finish the race. In order to compete, one had to run about 18 hours a day and sleep the remaining 6 hours. They also had an entourage traveling with them – trainers, nutritionists, massage therapists, medical personnel, sleeping tents, etc. The thing is, Cliff Young didn’t know this. He had his girl friend and an old pickup truck. (Cliff married his girl friend shortly after the Westfield race.)
The morning of the second day, everyone was in for another surprise. Not only was Cliff still in the race, he had continued shuffling all night – he didn’t stop to sleep. He was only a little ways behind the leaders of the race. Cliff was asked about his tactics for the rest of the race. To everyone’s disbelief, he claimed he would continue to run straight through to the finish without sleeping.
Cliff kept shuffling. Each night he came a little closer to the leading runners. By the final night, he had passed all of the younger, world-class athletes. He was the first competitor to cross the finish line beating his nearest competitor by nine hours. In addition, he set a new course record. When Cliff was awarded the winning prize of $10,000, he said he didn’t know there was a prize and insisted that the money be given to the other runners.
The following year, Cliff entered the same race and took 7th place. During the race, he had fallen and displaced his left hip. His wife kicked it back in place and Cliff continued to shuffle to the finish line.
Cliff came to prominence again in 1997 at age 76, when he set out to raise money for homeless children by shuf-fling around Australia’s border. He completed 6,520 kilometers – (4,051 miles) - before he had to drop out. His only support staff member, his wife, had become ill. Cliff Young passed away in 2003 at the age of 81.
Today the “Young shuffle” has been adopted by ultra-marathon runners because is it considered more energy-efficient. Further more, during the Sydney to Melbourne race, modern competitors do not sleep. Winning the race now requires runners to go all night as well as all day, just like Cliff Young.
• Moral of the story – it only takes one person to change long held perceptions in this world.
Showing posts with label Corporate. Show all posts
Showing posts with label Corporate. Show all posts
Friday, October 7, 2011
Saturday, July 9, 2011
Corporate Earnings
This week was a week of gyrations just before companies start announcing earnings next week. This will discuss how to interpret a corporate earnings report. At the end is some interesting food facts, one of my favorite subjects. I have included the weekly recap from Vanguard.
I did run the 5 mile Bear Run this year up to the top of Grandfather Mountain. My time was 57 minutes which is better than the 60 minute target. In the movie Forrest Gump, Tom Hanks is running up a mountain. This scene was filmed on the road up to Grandfather Mountain. The curve on the road is now called the Forrest Gump curve. Watch this portion of the movie and see what you think about running up an 11% grade.
Vanguard
The second month in a row of much-lower-than-expected job creation dimmed hopes that the economic recovery will soon pick up speed. Manufacturing showed signs of strength—orders picked up and factory employment rose modestly—but consumers, small businesses, and the public sector remained constrained by concerns ranging from the housing market to the debt and deficit struggles of governments at home and abroad. "The extremely weak job numbers are a real concern," said Vanguard economist Roger Aliaga-Díaz. "With so much uncertainty on the labor market front, it'll be difficult for consumers to become an important driver of the economic recovery during the second half of this year, as had been expected." For the week ending July 8, the S&P 500 Index rose 0.3% to 1,344 (for a year-to-date total return—including price change plus dividends—of about 8%). The yield on the 10-year U.S. Treasury note fell 19 basis points to 3.03% (for a year-to-date decrease of 27 basis points).
Earning Announcement
Every quarter has about 6 weeks where most publicly traded report a quarterly earnings report. This starts about the second full week of the first month in a new quarter, such as July. You will see headlines that sound really good and the stock goes down and vice versa so what is going on?
The important section of the announcement is typically not reported, which is guidance for the next quarter. A stock analyst will make a buy or sell recommendation based upon future performance and any positive or negative changes in key metrics that are normal for the company. The information about the current quarter is used to help support the picture for the future.
The bottom line is go to the section on guidance for the next quarter and go beyond the headlines.
Food Facts
• Celery has negative calories — it takes more calories to eat and digest a piece of celery than the celery has in it.
• One of every 11 boxes of cereal sold in the United States is Cheerios.
• In ancient Rome, oysters were so highly prized that they were sold for their weight in gold.
• Herring is the most widely eaten fish in the world.
• Potato chips are the number 1 selling snack in the United States. Potatoes are also the most popular vegetable among Americans.
• White chocolate does not contain caffeine.
• Raw broccoli, cup for cup, has twice as much vitamin C as an orange and almost as much calcium as milk.
I did run the 5 mile Bear Run this year up to the top of Grandfather Mountain. My time was 57 minutes which is better than the 60 minute target. In the movie Forrest Gump, Tom Hanks is running up a mountain. This scene was filmed on the road up to Grandfather Mountain. The curve on the road is now called the Forrest Gump curve. Watch this portion of the movie and see what you think about running up an 11% grade.
Vanguard
The second month in a row of much-lower-than-expected job creation dimmed hopes that the economic recovery will soon pick up speed. Manufacturing showed signs of strength—orders picked up and factory employment rose modestly—but consumers, small businesses, and the public sector remained constrained by concerns ranging from the housing market to the debt and deficit struggles of governments at home and abroad. "The extremely weak job numbers are a real concern," said Vanguard economist Roger Aliaga-Díaz. "With so much uncertainty on the labor market front, it'll be difficult for consumers to become an important driver of the economic recovery during the second half of this year, as had been expected." For the week ending July 8, the S&P 500 Index rose 0.3% to 1,344 (for a year-to-date total return—including price change plus dividends—of about 8%). The yield on the 10-year U.S. Treasury note fell 19 basis points to 3.03% (for a year-to-date decrease of 27 basis points).
Earning Announcement
Every quarter has about 6 weeks where most publicly traded report a quarterly earnings report. This starts about the second full week of the first month in a new quarter, such as July. You will see headlines that sound really good and the stock goes down and vice versa so what is going on?
The important section of the announcement is typically not reported, which is guidance for the next quarter. A stock analyst will make a buy or sell recommendation based upon future performance and any positive or negative changes in key metrics that are normal for the company. The information about the current quarter is used to help support the picture for the future.
The bottom line is go to the section on guidance for the next quarter and go beyond the headlines.
Food Facts
• Celery has negative calories — it takes more calories to eat and digest a piece of celery than the celery has in it.
• One of every 11 boxes of cereal sold in the United States is Cheerios.
• In ancient Rome, oysters were so highly prized that they were sold for their weight in gold.
• Herring is the most widely eaten fish in the world.
• Potato chips are the number 1 selling snack in the United States. Potatoes are also the most popular vegetable among Americans.
• White chocolate does not contain caffeine.
• Raw broccoli, cup for cup, has twice as much vitamin C as an orange and almost as much calcium as milk.
Sunday, August 30, 2009
Corporate Bonds
As of 2006, the size of the outstanding U.S. bond market debt was $25.2 trillion. Nearly all of the $923 billion average daily trading volume (as of early 2007) in the U.S. bond market takes place between broker-dealers and large institutions in a decentralized, over-the-counter (OTC) market. The New York Stock Exchange (NYSE) is the largest centralized bond market, representing mostly corporate bonds.
For market participants who own a bond, collect the coupon and hold it to maturity, market volatility is irrelevant; principal and interest are received according to a pre-determined schedule. But participants who buy and sell bonds before maturity are exposed to many risks, most importantly changes in interest rates. When interest rates increase, the value of existing bonds fall, since new issues pay a higher yield. When interest rates decrease, the value of existing bonds rise, since new issues pay a lower yield. Fluctuating interest rates are part of a country's monetary policy and bond market volatility is a response to expected monetary policy and economic changes.
Compared to government bonds, corporate bonds generally have a higher risk of default. This risk depends, of course, upon the particular corporation issuing the bond, the current market conditions and governments to which the bond issuer is being compared and the rating of the company. Corporate bond holders are compensated for this risk by receiving a higher yield than government bonds.
Key Point #1: Companies, such as Moody's and Standard and Poors, rate the risk of the bond. Companies with top ratings of A or better are called investment grade and those rated lower are called junk grade. Junk bonds have more risk and compensate the investor by paying a higher rate. The difference above the investment grade bond is called a spread. Conservative investors will choose to invest in primarily investment grade bonds or a mutual fund that invests primarily in investment grade bonds.
Key Point #2: You can make money by holding the bond to maturity and getting the interest that is paid every 6 months called the coupon payment. You can make money by buying and selling bonds and getting a capital gain on the face value of the bond.
Key Point #3: Normally, when interest rates go up the coupon payment stays constant, and the face value of the bond goes down and vice versa. Another factor, key point #4, is the risk of default can also drop the face value of the bond. Interest rate changes are more important for bonds that have a long time to maturity and less important for a shorter term duration. You can mitigate this risk by selecting short term bonds or mutual funds that invest in short term bonds.
Key Point #4: Bond holders have a risk of not getting paid full value. For example owners of GM bonds got paid about half of the face value. When the economy enters a recession and companies can go out of business the face value drops and the drop can be much larger than the gain from the dropping interest rate. This is what happened in 2008 and early 2009 and why virtually every corporate bond dropped in value.
Key Point #5: An investor needs to know where we are in the Business Cycle when investing.
Bottom Line: Given where we are in the Business Cycle, we have much less risk of a default. Face values that dropped last year should be recovered or recovering. Interest rates are rising so staying on the short time duration to maturity makes sense. A conservative investor should pursue a mutual fund with primarily investment grade bonds while a more aggressive investor should pursue a mutual fund with primarily junk bonds.
For market participants who own a bond, collect the coupon and hold it to maturity, market volatility is irrelevant; principal and interest are received according to a pre-determined schedule. But participants who buy and sell bonds before maturity are exposed to many risks, most importantly changes in interest rates. When interest rates increase, the value of existing bonds fall, since new issues pay a higher yield. When interest rates decrease, the value of existing bonds rise, since new issues pay a lower yield. Fluctuating interest rates are part of a country's monetary policy and bond market volatility is a response to expected monetary policy and economic changes.
Compared to government bonds, corporate bonds generally have a higher risk of default. This risk depends, of course, upon the particular corporation issuing the bond, the current market conditions and governments to which the bond issuer is being compared and the rating of the company. Corporate bond holders are compensated for this risk by receiving a higher yield than government bonds.
Key Point #1: Companies, such as Moody's and Standard and Poors, rate the risk of the bond. Companies with top ratings of A or better are called investment grade and those rated lower are called junk grade. Junk bonds have more risk and compensate the investor by paying a higher rate. The difference above the investment grade bond is called a spread. Conservative investors will choose to invest in primarily investment grade bonds or a mutual fund that invests primarily in investment grade bonds.
Key Point #2: You can make money by holding the bond to maturity and getting the interest that is paid every 6 months called the coupon payment. You can make money by buying and selling bonds and getting a capital gain on the face value of the bond.
Key Point #3: Normally, when interest rates go up the coupon payment stays constant, and the face value of the bond goes down and vice versa. Another factor, key point #4, is the risk of default can also drop the face value of the bond. Interest rate changes are more important for bonds that have a long time to maturity and less important for a shorter term duration. You can mitigate this risk by selecting short term bonds or mutual funds that invest in short term bonds.
Key Point #4: Bond holders have a risk of not getting paid full value. For example owners of GM bonds got paid about half of the face value. When the economy enters a recession and companies can go out of business the face value drops and the drop can be much larger than the gain from the dropping interest rate. This is what happened in 2008 and early 2009 and why virtually every corporate bond dropped in value.
Key Point #5: An investor needs to know where we are in the Business Cycle when investing.
Bottom Line: Given where we are in the Business Cycle, we have much less risk of a default. Face values that dropped last year should be recovered or recovering. Interest rates are rising so staying on the short time duration to maturity makes sense. A conservative investor should pursue a mutual fund with primarily investment grade bonds while a more aggressive investor should pursue a mutual fund with primarily junk bonds.
Subscribe to:
Comments (Atom)