Crossing Wall Street

Colgate-Palmolive at New All-Time High

Eddy — Wed, 16 May 2012 14:34:56 +0000

Shares of Colgate-Palmolive ($CL) are up to a new all-time high today. The stock is up more than 14,000% since its 1980 low. I think the stock may be over-extended at this price. Going by my simple valuation method, CL is about 40% over-valued.

The Bond Bull Lives

Eddy — Wed, 16 May 2012 11:04:37 +0000

I continue to be amazed by the strength of the bond market. Folks in the media love to mention how most money managers can’t beat the stock market. That’s’ true, but for the last several years, the stock market hasn’t even been able to beat the bond market. If you had just parked your money in a long-term T-bond, you would have beaten many top pros. By a lot.

Several pundits, myself included, have said that the bond market’s 30-year bull run has finally ended. That appeared to happen last September, but it was a head fake. Treasury yields continue to move lower.

Yesterday, the yield on the seven-year Treasury closed at 1.19% which is a multi-decade low (the FRED data goes back to 1969). For contrast, in 1981, a seven-year Treasury was yielding more than 16%.

The yields on the 5-, 10- and 20-year bonds are now just a few basis points above generational lows. The 30-year bond is a bit of an exception. Its yield is still 38 basis points above the low yield from December 2008. Don’t think this latest run for bonds is all due to purchases by the Federal Reserve. Corporate bonds are also doing well.

Check out this chart which shows how stocks are doing relative to bonds. For my stock proxy, I used the Vanguard 500 Index Investor Fund (VFINX); for bonds I used Vanguard Long-Term Investment-Grade (VWESX).

When the blue line goes down, that means bonds are beating stocks. When it climbs, stocks are beating bonds. Outside a big run-up during the late 1990s, and a smaller climb last decade, bonds have done a very good job of keeping pace with stocks. Over the last 23 years, the corporate bond index fund has outperformed the stock index fund.

Morning News: May 16, 2012

Eddy — Wed, 16 May 2012 09:52:53 +0000

Greek Leaders Meet on Election After European Stocks Drop

Merkel-Hollande Meeting Yields Greece Growth Signal

Rajoy Says Spain at Risk of Being Shut Out of Markets

Singapore Dollar Falls To Near 4-Month Low On Greek Political Woe

Treasury Yield Is 9 Basis Points From Low on Greece

Needy States Use Housing Aid Cash to Plug Budgets

US Farmland Stays Hot At Record High Prices-Fed Surveys

Facebook Boosts IPO Size By 25%, Could Top $16 Billion

Ahead of I.P.O., G.M. to Quit Advertising on Facebook

A Russian Magnate’s Facebook Bet Pays Off Big

Sina May Post Second Straight Loss as Weibo Costs Climb

EADS Reports First Quarter (Q1) Results 2012

J.C. Penney Posts Big Loss as 3 Retailers Gain

Soda Makers Scramble to Fill Void as Sales Drop

Roger Nusbaum: Black Swan Alert–Financial Stocks Still Stink

Phil Pearlman: Don’t Hang Around Too Long in the Facebook Proxy Trades

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Sign-Up for CWS Market Review

Eddy — Tue, 15 May 2012 18:57:02 +0000

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Coty Walks Away from Avon

Eddy — Tue, 15 May 2012 13:49:59 +0000

Last month, Coty offered to buy Avon Products ($AVP) for $23.25 per share. Avon’s stock had been at $19.36, but despite the premium, the company shot the offer down. Coty then raised the price to $24.75 per share and set a take-it-or-not deadline.

This is where it gets strange. Avon asked for a deadline extension, and Coty has now withdrawn the bid. Apparently, Avon didn’t “engage” with Coty, which would upset me as well. I don’t think people are telling us the full story, but something happened that soured the Coty folks on Avon.

My take is that this was a lousy deal for Coty, and Avon should have taken any price they could have gotten. According to the world’s simplest stock valuation tool, Avon should be worth half its market price.

Overvalued companies shouldn’t get greedy (for that matter, neither should undervalued companies). Four years ago, Yahoo ($YHOO) turned down Microsoft’s buy-out offer of $31 per share. Yahoo got greedy and wanted more. Microsoft raised their bid to $33 per share and Yahoo still said no. I said this was a bad move. Today, Yahoo’s stock is trading for half that amount.

More Troubles in Greece

Eddy — Tue, 15 May 2012 13:22:33 +0000

Today looks like it’s going to be a relief rally for stocks. Today’s CPI report showed that inflation was flat last month. Year-over-year inflation is running at 2.3%. The core rate, which excludes food and energy, rose by 0.2%.

Looking at the details of the report, the number that jumps out is that gasoline prices dropped by 2.6% last month. The average price for gasoline has dropped for six straight weeks. It’s now down 20 cents per gallon from a year ago. This is obviously good news for consumers, and it helps the economy as well.

Still, the economy doesn’t seem to be moving very quickly. The retail sales report this morning showed a 0.1% increase last month, which is what analysts were expecting.

The latest attempt in Greece to form a government has failed. This is becoming a pattern and the news is not being well received by the European markets. I think they need to call elections again soon. The problem is that a new election will probably be good for the far left-wing parties, and that will almost certainly lead to Greece departing the euro. The euro is now worth less than $1.28.