With the hours ticking down to the next Federal Reserve meeting, and with faux strategists running amok with the word "taper," I would like to share a few useful statistics. The more your brain is stuffed with knowledge prior to Ben Bernanke's press conference swan song, the better the chance you'll have of using the correct tactile maneuvers in response to it.
1. In eight of 10 S&P 500 sectors, margins on earnings before interest and taxes are lower now than they were during the 2007 peak. In light of that, keep in mind that 2014 marks the year that economic growth will be forced to fuel earnings and stock prices -- because the Fed's liquidity support promises to recede, and the 10-year U.S. Treasury bond stands to yield north of 3% as a result. Remember: At least in my view, stocks were bought in 2013 on expectations of calm Fed commentary and policy.
2. The richest 10% of Americans in 2012 earned more than half of all income. That's the largest such ratio since 1917 -- and it explains why H&M recently crushed sales estimates, why Abercrombie & Fitch (ANF) is promoting like crazy on Facebook (FB) in the final days before Christmas and why Louis Vuitton is rocking. Pick your consumer discretionary plays very carefully in early 2014.
3. NYSE margin debt stands at $420 billion, a byproduct of uber-low interest rates. This sort of resembles another period in 1987, circled on the chart below.
Source: Yahoo! Finance, DistressedVolatility.com
Maybe I am being too simplistic, but if interest rates head incrementally higher in 2014, won't these leveraged trades get unwound amid expectations of reduced future returns? Hmm. The margin-debt issue is something you will hear about increasingly as we conclude the year, bet your borrowed dollar.
Spotlight on UPS
On Friday, a new video from Bloomberg was released live from a UPS (UPS) location, breaking down some of the new technology that the company is using to squeeze out efficiencies from every inch of its operations. Last summer, I also conducted a behind-the-scenes type of interview in which I really tried to venture into the head of the company so as to better understand its financial results. From talking to UPS execs after the interview, I can tell you: The company's use of technology is mind-blowing. In fact, UPS even has a secret facility in Pennsylvania where 12 folks holding math PhDs test the company's newest initiatives.
One particular fact I learned from the conversation is that, with the use of new technology, UPS has shaved some 10% off the miles its trucks travel. This makes the company more efficient, which benefits both customers and shareholders. The company is also able to predict when certain things on a truck need to be replaced or repaired. UPS has it down to such a science: It knows, for instance, that oil in a truck used in the Midwest will have to be changed more frequently than, say, a truck in New York City.
Tuesday Rewind
Boeing (BA), which makes really large airplanes, announced a massive dividend increase of 50% Monday evening. Talk about icing on the cake -- the stock is up 74% for 2013 so far! Let's secure a profit on Boeing as a "Top 2013" pick of mine, as detailed in this throwback video. By the way, McDonald's (MCD) and Caterpillar (CAT) -- also mentioned in that appearance -- were dogs throughout 2013.
