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View Full Version : Chart o? the Day: Bond Fund Flows are Hilarious



Thierry Martin
05-29-2013,
This is BlackRock?s chart of the week, it shows you how fearful fund investors have become about the potential for rising rates ? they?re voting with their mutual fund inflows / outflows:

That?s quite a change of pace from this beauty of a contrary indicator, posted weeks before the bond market top in July of 2012 (flagged by Barry):

Thierry Martin
05-29-2013,
Even with the rapid rise in new and exciting technological devices, one thing's for sure: People love watching TV. It doesn't matter when or where -- or on what device.

The companies that provide the infrastructure for viewing content across a large and growing variety of devices are frequently overlooked. Harmonic (Nasdaq: HLIT), a market leader in video-on-demand services, is one such company.

Harmonic has many opportunities to expand its market share, especially with the proliferation of video on demand and high-definition TV. Yet the biggest opportunity for Harmonic is in the expansion of pay-TV services in international markets. The emergence of the global middle class is leading the demand for pay-TV services, which has compelled providers to expand their content offerings.



Harmonic sells high-performance video infrastructure products that enable content providers to efficiently create and deliver a full range of video services to consumer devices, including TVs, PCs, tablets and smartphones. Its revenues are generated from selling video processing solutions to various media companies and providers, including broadcasters (HBO, NBC, ESPN), satellite providers (Dish (Nasdaq: DISH), DirecTV (Nasdaq: DTV)), telcos (SingTel, Vodafone (Nasdaq: VOD)), cable providers (Charter (Nasdaq: CHTR), Cox, Comcast (Nasdaq: CMCSA)) and new media (Amazon.com (Nasdaq: AMZN)).

International satellite, cable and telco providers are increasing their capital spending to expand their video offerings. In the grand scheme of things, there are thousands of media and broadcast companies around the world, many outside the U.S. Most need to upgrade their infrastructure -- particularly to HD -- and that's where Harmonic comes into play.

Harmonic counts three of the top five broadcasters in the U.S. as customers. In terms of providers, Comcast, the largest cable company, already accounts for 16% of total revenue. Its competitors Time Warner Cable (NYSE: TWC), Cox, Cablevision (NYSE: CVC) and Charter are all Harmonic customers.

Harmonic is also tapping the $2 billion market of so-called converged cable access platforms, which seeks to put all services -- video, data and so on -- on the same IP platform. Harmonic's first product in the space, the NSG Pro, is nearly set for release, and the company already has its first multi-million-dollar order.

Harmonic has a pristine balance sheet, with $169 million in cash, or $1.68 a share, a

Thierry Martin
05-29-2013,
Merrill?s quant strategy group unveils their favorite ten stocks for 2014, one from each sector?

Our favorite stock ideas for 2014
We provide a list of 10 S&P 500 stocks for 2014 ? one from each of the 10 GICS
sectors. These stocks align with our themes for the year-ahead 2014 and our
quantitative work. This list is intended for the full year, meaning we do not provide
updates intra-year. To come up with our stock ideas, we used the following criteria:

1. S&P 500 stocks which are Buy-rated by BofAML fundamental analysts

2. Review of metrics for favorable valuation, quality, dividend growth or cash
deployment, foreign exposure, GDP sensitivity, fund ownership vs. S&P 500
weighting, BofAML vs. consensus EPS expectations, and/or qualifications
based on other themes in our Year Ahead outlook, such as the potential for
self-help via operational turnarounds, divestitures, etc.

3. After identifying the stocks consistent with the criteria above, we also considered
the views of our fundamental analysts in choosing the stocks for the list.
See the table below for details on our 10 stocks.

Thierry Martin
05-29-2013,
They say investing in the stock market is all about forward thinking. That's certainly the case with the biotech sector. A biotech's pipeline can mean the difference between boom and bust.

The Medicines Co. (Nasdaq: MDCO) is a global biotech company with seven drugs in the pipeline that could prove to be big hits in the acute and intensive care hospital product market. The company's key legacy product and top revenue generator, Angiomax, continues to bring in profits, and in addition to its robust in-house development pipeline, the company also recently teamed up with two major drug companies and made a key acquisition -- all of which should only further accelerate its growth.

The biggest factor keeping Medicines below what I consider its fair value is its ongoing lawsuit with Hospira (NYSE: HSP). In 2010, Hospira sued to market its generic version of Angiomax before Medicines' patents expire. A decision is expected next year, but regardless of the outcome, Medicines could lose its Angiomax exclusivity as soon as mid-2015.

What many investors are missing is that Medicines appears to have a bright future despite its legal fight over Angiomax, thanks to the clinical successes within its pipeline. When Angiomax does lose exclusivity, Medicines will already be a diversified biopharma company.

What's more, over 90% of Medicines' sales come from the U.S., so there is considerable opportunity for international expansion. Medicines is focusing its sales and marketing efforts to faster-growing markets overseas, establishing operations where it can commercialize its other legacy products as well as other products in development.

Its pipeline is where the company's greatest growth potential lies, and Medicines has a couple of promising candidates in clinical trials. The company plans to file for FDA approval for its oritavancin drug, designed to fight acute skin infections, in the current quarter and for European Medicines Agency approval next year. Medicines has already filed for FDA approval of its anti-platelet cangrelor drug -- which is expected to be one of the company's biggest sellers next year and in 2015 -- and is hoping for approval by mid-2014. The company will file for approval of Cangrelor in Europe this quarter, with approval also expected next year.

Beyond Medicines' in-house pipeline, the company also recently partnered with two major drugmakers. As part of its global collaboration agreement with AstraZeneca (NYSE: AZN), Medicines will co-promote the oral tablet anti-platelet medicine Brilinta in the U.S. Its other partnership is a collaboration with Alnylam Pharmaceuticals (Nasdaq: ALNY) to develop and make therapeutic products targeting the proprotein convertase subtilisin/kexin type 9 (PCSK9) gene, which plays a prominent role in the body's production of cholesterol.

On the acquisition front, Medicines completed its purchase of ProFibrix in August after reviewing the Phase III clinical trials of ProFibrix's lead product, Fibrocaps, This product, still being developed, is expected to help stop bleeding during surgery. Medicines paid $90 million in cash, with another $140 million contingent on hitting development milestones. Medicines estimates Fibrocaps could produce peak sales of $300 million; this figure could rise if Medicines receives approval of a spray device it's developing for delivering Fibrocaps.

So Medicines is making progress in diversifying revenues. The company projects its new products can deliver revenue growth of 20% through 2018. Its newly launched products currently account for less than 5% of revenues, but this number is expected to jump above 45% in just a couple of years.

Risks to Consider: Shares have rallied more than 70% in the past year on anticipation of these new drugs coming to market, so most of MDCO's potential gains may have already been realized. There's also Medicines' possible early loss of exclusivity on Angiomax, its biggest earner, to consider.

Action to Take --> Based on a 2016 sales estimate of roughly $1 billion, Medicines is trading at an enterprise value-to-sales ratio of 2, compared with the industry average of over 3. Given the company's robust pipeline, there's no reason to believe it won't be trading in line with the industry in a couple of years. Analysts expect Medicines' earnings per share to grow at a compound annual growth rate of 31.5% over the next five years, compared with an expected average CAGR of 20% for the industry. An EV/sales multiple of 3 on 2016 sales estimates puts the upside at $55 a share.

Thierry Martin
05-29-2013,
Stuff I?m Reading this Morning?

November Non-Farm Payrolls comes out this morning at 8:30 am. It will be the most important jobs report of all time, as usual. The only preview you need is here: (BusinessInsider)

Commodities suck, time to buy? (FT)

Everyone calls bullshit on Mulally not joining Microsoft. (Barrons)

Sheila Bair looks at the $4.1 trillion BlackRock and sees nothing but systemic risk. (Fortune)

Is the sleeping giant finally awakening? Some ETFs to play China with. (ETFTrends)

Stop giving yourself opportunities for failure. (AbnormalReturns)

Richard Bernstein?s latest: The biggest themes of 2014. (BusinessInsider)

On the insanely competitive guest-booking environment on financial TV (who the fck are these guests that are being fought over? I can?t even imagine.) (BusinessInsider)

Top Ten Highest Paid CEOs of 2013 (TIME)

For a trader, Jerry sure knows an awful lot about how the economy works. Great primer here: (ArmoTrader)

Meb Faber unpacks a well-known quantitative sector rotation model, is impressed with its simplicity. (MebFaber)

Jon Stewart vs Blackstone is kind of interesting? (Fortune)

Nelson Mandela Becomes First Politician To Be Missed (Onion)

My book, Backstage Wall Street, available at Amazon

Thierry Martin
05-29-2013,
When I was a little kid in the early 1950?s, my grandfather used to endlessly rail against Franklin Delano Roosevelt. The WWI veteran, who was mustard gassed in the trenches of France and was a lifetime, died in the wool Republican, said the former president was a dictator and a traitor to his class, who trampled the constitution with complete disregard. Candidates Hoover, Landon, and Dewey would have done much better jobs.

What was worse, FDR had run up such enormous debts during the Great Depression that, not only would my life be ruined, so would my children?s lives. As a six year old, this disturbed me deeply, as it appeared that just out of diapers, my life was already pointless. Grandpa continued his ranting until a three pack a day Lucky Strike non-filter habit finally killed him in 1977. He insisted until the day he died that there was no definitive proof that cigarettes caused lung cancer.

What my grandfather?s comments did do was spark in me a permanent interest in the government bond market, not only ours, but everyone else?s around the world. So what ever happened to the despised, future ending Roosevelt debt?

In short, it went to money heaven. And here I like to use the old movie analogy. Remember, when someone walked into a diner in those old black and white flicks? Check out the prices on the menu on the wall. It says ?Coffee: 5 cents, Hamburgers: 10 cents, Steak: 50 cents.?

That is where the Roosevelt debt went. By the time the 20 and 30 year Treasury bonds issued in the 1930?s came due, WWII, Korea, and Vietnam happened, and the great inflation that followed. The purchasing power of the dollar cratered, falling roughly 90%, Coffee was now $1.00, a hamburger $2.00, and a cheap steak at Outback cost $10.00. The government, in effect, only had to pay back 10 cents on the dollar in terms of current purchasing power on whatever it borrowed in the thirties.

Who paid for this free lunch? Bond owners, who received, minimal, and often negative real, inflation adjusted returns on fixed income investments for three decades. In the end, it was the risk avoiders who picked up the tab. This is why bonds became known as ?certificates of confiscation? during the seventies.

This is not a new thing. About 300 years ago, governments figured out there was easy money to be had by issuing paper money, borrowing massively, stimulating the local economy, and then repaying the debt in devalued future currencies. This is one of the main reasons why we have governments, and why they have grown so big. Unsurprisingly, France was the first, followed by England and every other major country.
The really fascinating thing about financial markets so far this year is that I see history repeating itself. Owners of bonds have had a terrible start, and things are about to get much worse.
The 30-year Treasury bond suffered horrific losses during the May rout, with yields rocketing from 2.5% to 4%. That means it has already lost its coupon for the year, and then some. Bondholders can expect to receive a long series of rude awakenings when they get their monthly statements. No wonder Bill Gross, the head of bond giant, PIMCO, says he expects to get ashes in his stocking for Christmas this year.
The scary thing is that we could be only six months into a new 30-year bear market for bonds that lasts all the way until 2042. This is certainly what the demographics are saying, which predicts an inflationary blow off in decades to come that could take short term Treasury yields to a nosebleed 18% high. That scenario has the leveraged short Treasury bond ETF (TBT), which has just leapt from $58 to $79, soaring all the way to $200.
Check out the chart below, and it is clear that the downtrend in long term Treasury bond yields going all the way back to April, 2011 is broken, and that we are now headed substantially up. The old resistance level at 1.95% now becomes support. That targets a new range for bonds of 1.90%-2.90%, possibly for the rest of 2013.

There is a lesson to be learned today from the demise of the Roosevelt debt. It tells us that the government should be borrowing as much as it can right now with the longest maturity possible at these ultra low interest rates, and spending it all. In effect, it never has to pay it back, but enables us to reap immediate benefits.

If I were king of the world, I would borrow $5 trillion tomorrow and disburse it only in areas that create domestic US jobs. Not a penny should go to new social programs. Long-term capital investments should be the sole target. Here is my shopping list:

$1 trillion ? new Interstate freeway system

$1 trillion ? additional infrastructure repairs and maintenance

$1 trillion ? conversion of our transportation system to natural gas

$1 trillion ? construction of a rural broadband network

$1 trillion ? investment in R&D for everything

The projects above would create 5 million new jobs quickly and end the present employment crisis. Who would pay for all of this? Today?s investors in government bonds, half of whom are foreigners, principally the Chinese and Japanese.

How did my life turn out? Was it ruined, as my grandfather predicted? Actually, I did pretty well, as did the rest of my generation, the baby boomers. My kids did OK too. Grandpa was always a better historian than a forecaster. But did have the last laugh. He made a fortune in real estate, betting correctly on the inflation that always follows borrowing binges.

Thierry Martin
05-29-2013,
When I first visited Calcutta in 1976, more than 800,000 people were sleeping on the sidewalks, I was hauled everywhere by a very lean, barefoot rickshaw driver, and drinking the water out of a tap was tantamount to committing suicide. Some 36 years later, and the subcontinent is poised to overtake China?s white hot growth rate.

My friends at the International Monetary Fund just put out a report predicting that India will grow by 8.5% this year. While the country?s total GDP is only a quarter of China?s $5 trillion, its growth could exceed that in the Middle Kingdom as early as 2014.

Many hedge funds believe that India will be the top growing major emerging market for the next 25 years, and are positioning themselves accordingly. Investors are now taking a harder look at the country ETF?s, including India (INP) and China (FXI), which have recently suffered gut churning selloffs.

India certainly has a lot of catching up to do. According to the World Bank, its per capita income is $3,275, compared to $6,800 in China and $46,400 in the US. This is with the two populations close in size, at 1.3 billion for China and 1.2 billion for India.

But India has a number of advantages that China lacks. To paraphrase hockey great, Wayne Gretzky, you want to aim not where the puck is, but where it?s going to be. The massive infrastructure projects that have powered much of Chinese growth for the past three decades, such as the Three Gorges Dam, are missing in India. But financing and construction for huge transportation, power generation, water, and pollution control projects are underway.

A large network of private schools is boosting education levels, enabling the country to capitalize on its English language advantage. When planning the expansion of my own business, I was presented with the choice of hiring a website designer here for $60,000 a year, or in India for $5,000. That?s why booking a ticket on United Airlines or calling technical support at Dell Computer gets you someone in Bangalore.

India is also a huge winner on the demographic front, with one of the lowest ratios of social service demanding retirees in the world. China?s 30 year old ?one child? policy is going to drive it into a wall in ten years, when the number of retirees starts to outnumber their children.

There is one more issue out there that few are talking about. The reform of the Chinese electoral process at the next People?s Congress in 2013 could lead to posturing and political instability which the markets could find unsettling. India is the world?s largest democracy, and much of its current prosperity can be traced to wide ranging deregulation and modernization than took place 20 years ago.

I have been a big fan of India for a long time, and not just because they constantly help me fix my computers. In the past, I recommended Tata Motors (TTM), which has since doubled, making it one of my best, all-time single stock picks (click here for ?Take Tata Motors Out for a Spin?). On the next decent dip take a look at the Indian ETF?s (INP), (PIN), and (EPI).

Thierry Martin
05-29-2013,
December 6, 2013 ? Quote of the Day

?Money will always flow towards opportunity, and there is an abundance of that in America?.America?s best days lie ahead? said ?Oracle of Omaha?, Warren Buffet, CEO and the largest shareholder in Berkshire Hathaway.



go to the Mad Hedge Fund Trader's website

Thierry Martin
05-29-2013,
My top 6 watches for Friday. Trade with us free for 2 weeks. Start here.
GMO ? similar setup to watch like PEIX did recently coming off lows. Risk for me is if the higher low fails AND if you decide to give it space, Max pain is if November low fails.

Thierry Martin
05-29-2013,
There are some 75 million small and midsize businesses around the world. If they plan on competing in an increasingly connected world of mobile devices and e-commerce, they'll all need to have an online presence.

More than three-fourths of these 75 million SMBs don't have a basic website -- so this market is grossly underserved. Endurance International Group (Nasdaq: EIGI), which recently went public, is looking to change this.

Endurance is one of the U.S.'s top hosting companies, with a number of brands, including HostGator and Bluehost. Since its October IPO, EIGI is up 10%, and a number of positive aspects make the company a compelling growth investment.

Endurance estimates its share of the SMB website market at 5%, which means there's a lot of room for growth. But the company offers more than just website hosting. Endurance's variety of products and services -- including Web hosting, on-demand computing, security, marketing solutions and site analytics -- is relatively unrivaled in the space, allowing it to serve a broad array of companies.

In addition to the services listed above, Endurance also has its Mojo Marketplace product, which allows companies to develop software solutions and sell them to any number of Endurance's 3.4 million subscribers. Mojo Marketplace allows SMBs to buy the latest website templates, plug-ins, logos and scripts from some of the most popular open-source applications, like WordPress, Joomla, PrestaShop, Concrete5 and Drupal.

With companies looking to expand their presence in an increasingly competitive market, Endurance is in a great position to capitalize. Small and midsize businesses are expected to be spending $96 billion a year on cloud-based services by 2015, representing a compound annual growth rate of 28% since 2012.

Endurance can increase its revenue in two ways: by growing its subscriber base -- which it can accomplish as the market grows and through greater market penetration -- and by boosting its average revenue per subscriber. The company's roughly 3.4 million subscribers spent an average of $13.01 during the second quarter. The ability to upsell its customers to products with higher revenue per subscription is one of Endurance's most important growth drivers.

The company also could increase subscriber revenue through cross-selling its products. Its recent acquisitions, including HostGator, present the opportunity to cross-sell its other products to those subscribers. And its subscribers and customers are a loyal bunch, as seen in its stellar 99% retention rate.

Endurance has relied on word-of-mouth marketing for advertising, but the company plans to increase its marketing spending to help drive sales.

Driving Endurance higher should be the rising level of small businesses, more specifically, the increase in businesses that will be looking to boost their online presence. A continued rebound in the economy should help loosen SMBs' purse strings and further drive revenue for Endurance.

Endurance currently trades at an enterprise value-to-sales multiple of less than 6 and less than 4.5 when using 2014 sales estimates. This is on the low end among the major software-as-a-service (SaaS) companies: Salesforce.com trades at a multiple of 8.9, Proofpoint 6.3, Splunk 22.7 and ServiceNow 16.7. Given Endurance's scalable revenue model and ability to generate cash, a multiple of 6.5 for 2014 sales -- which yields a $22 price target -- is justified.

Risks to Consider: Endurance is dependent on SMB spending, which means it relies heavily on the broader economy. Any setback in the economic recovery could mean a decline in revenue.

Action to Take --> Buy Endurance for nearly 70% upside to $22.

- Marshall Hargrave

Thierry Martin
05-29-2013,
Hugh L. O?Haynew (and there ain?t none other), one of our partners in crime here at Oakshire Financial, ascended to the heavenly realms of stock trading glory just a few weeks back with his two-minutes-to-midnight short call on Tesla Motors (NASDAQ:TSLA), a trade that returned nearly 100% booty in a mere seven days.

We call it ?two-minutes-to-midnight? because Hugh stepped up to the plate just a day before Tesla?s quarterly earnings report, timing that could equally have marked blastoff day for that already high flying, popular stock.

But it wasn?t. And Hugh?s call was prescient. Traders who went with him saw their money double in five trading sessions, and I, too, earned small sum for piggybacking on the idea.

A Win is a Win is a Win

Small or large, though, a profit is a profit, and in the aftermath of our first Tesla win, we got to wondering if that same Studebaker of a stock might offer us another round of juice if we played her again. Daily moves in the shares are huge, and if we just got the direction right, we thought? well, we, too, might find ourselves under the lights of stock advisory stardom.

So we looked at the charts.

First the weekly, as it offered us a definitive big-picture look at trading in TSLA ?

Thierry Martin
05-29-2013,
People ask me about my most profitable investment.

It was an investment I made back in October 1999. Today, it pays me a yield equivalent to 27%, and it has forever changed how I look for income opportunities.

In 1999, I was speaking at an economic conference in New York. During one of the breaks, I struck up a conversation with two gentlemen who both happened to work in the oil and gas business. At the time, I was doing some consulting work for a lawsuit involving a number of large oil companies and had been knee-deep in oil price and production data.

Oil and natural gas prices had been on a steady 20-year decline following the "oil shock" of 1979. By the time 1999 rolled around, analysts had universally soured on the sector. Prices were going lower, they said. In March 1999, The Economist devoted a whole issue to the glut of world oil.

Discussing the future price for oil, The Economist said, "$10 [per barrel] might actually be too optimistic. We may be heading for $5."

In October 1999, I didn't agree with the analysts or the common view that oil prices were going to sink lower. As it turns out, neither did my newfound friends at the conference. Over the course of the meeting we exchanged information and data to back up our thesis.

Immediately following that conference, I made an investment in Burlington Resources, an oil and gas company that was later bought by ConocoPhillips (NYSE: COP).

Thierry Martin
05-29-2013,
?Tis the season to shop. Daniel Gross at The Daily Beast suggests you give the gift that keeps on giving: LED bulbs.

Quote of the day

Geert Rouwenhorst, ?People have difficulty buying things for diversification purposes. But negative correlation is what it is. When one thing goes up the other thing goes down. You can?t have it both ways.? (FT)

Chart of the day

Thierry Martin
05-29-2013,
How good is Carl Icahn? Aside from the fact that he is now the wealthiest investor in the world, having surpassed George Soros this year with $8 billion in gains for calendar 2013 (according to Bloomberg), just look at how he plays his cards at the table.

The mark of a truly great investor is someone who can set themselves up to win even if they lose. Some call that ?optionality? or a ?margin of safety.? I call it genius, especially when the stakes and dollar amounts and visibility are this high.

That?s exactly what?s going on with Carl Icahn?s position in Apple. The stock?s been shooting straight up since his arrival and its trajectory has almost nothing to do with any of his proposals. The company has independently embarked on the largest share repurchase plan in history but Carl wants them to do more. And they may ? or they may not. It doesn?t matter. He can make money regardless thanks to the iPhone 5S, the new iPad products and whatever else they roll out in the future (TV, networked home, Internet of Things, iTunes payment processing etc).

Icahn has announced a softening in his stance re: how big the buyback he?s seeking needs to be. He?s filed a proxy motion for a precatory vote of shareholders on his proposals ? precatory meaning non-binding on the company, just a suggestion. Will he win? Who knows. Adam Lashinsky at Fortune is characterizing this move as the investor having ?blinked? in his game of chicken.

No, Adam. I don?t think so.

Why would he blink when he?s not in any danger at all. Isn?t that how a game of chicken works ? both parties have equal amounts of risk should they continue? What is Carl?s risk? Reputation? Please. He?s just allowing the investment to play out.

It is entirely conceivable that shareholders do not vote his way but that he wins anyway in the only way that truly matters ? making money. He lost his proxy fight with LionsGate but he still made money in the stock. With Netflix, he barely had to clear his throat. What?s the difference?

Carl is the king.

Thierry Martin
05-29-2013,
If you think that an energy shortage is bad, it will pale in comparison to the next water crisis. So investment in fresh water infrastructure is going to be a great recurring long-term investment theme. One theory about the endless wars in the Middle East since 1918 is that they have really been over water rights.

Although Earth is often referred to as the water planet, only 2.5% is fresh, and three quarters of that is locked up in ice at the North and South poles. In places like China, with a quarter of the world?s population, up to 90% of the fresh water is already polluted, some irretrievably so. Some 18% of the world population lacks access to potable water, and demand is expected to rise by 40% in the next 20 years.

Aquifers in the US, which took nature a millennia to create, are approaching exhaustion. While membrane osmosis technologies exist to convert seawater into fresh, they use ten times more energy than current treatment processes, a real problem if you don?t have any, and will easily double the end cost of water to consumers. While it may take 16 pounds of grain to produce a pound of beef, it takes a staggering 2,416 gallons of water to do the same. Beef exports are really a way of shipping water abroad in concentrated form.

The UN says that $11 billion a year is needed for water infrastructure investment, and $15 billion of the 2008 US stimulus package was similarly spent. It says a lot that when I went to the University of California at Berkeley School of Engineering to research this piece, most of the experts in the field had already been retained by major hedge funds!

At the top of the shopping list to participate here should be the Claymore S&P Global Water Index ETF (CGW), which has appreciated by 14% since the October low. You can also visit the PowerShares Water Resource Portfolio (PHO), the First Trust ISE Water Index Fund (FIW), or the individual stocks Veolia Environment (VE), Tetra-Tech (TTEK), and Pentair (PNR). Who has the world?s greatest per capita water resources? Siberia, which could become a major exporter of H2O to China in the decades to come.

Thierry Martin
05-29-2013,
Every time the price of oil spikes, we learn vast amounts of information about the global reach of this indispensable commodity. It?s like taking a non-core elective in geology at college. So I was fascinated when I found the chart of relative sector winners and losers below.

No surprise that energy does best from sky-high crude prices. It is followed by telecommunications and health care. You would also expect consumer discretionary stocks to take it on the nose, as high energy prices almost always lead to a cyclical downturn in the economy.

Who is the worst performer of all? Europe, which makes the recent weakness even more understandable.

Thierry Martin
05-29-2013,
In their century long coverage of exotic places, cultures, and practices, National Geographic Magazine inadvertently sheds light on broad global trends that deeply affect the rest of us. Plus, the pictures are great. A recent issue celebrated the approach of the world?s population to 7 billion, and the implications therein.

Long time readers of this letter know that demographic issues will be one of the most important drivers of all asset prices for the rest of our lives. The magazine expects that our planet?s population will reach 9 billion by 2045, the earliest date that I have seen so far. Can it take the strain? Early religious leaders often cast Armageddon and Revelations in terms of an exploding population exhausting all resources, leaving the living to envy the dead. They may not be far wrong.

A number of developments have postponed the final day of reckoning, including the development of antibiotics, the green revolution, DDT, and birth control pills. Since 1952, life expectancy in India has expanded from 38 years to 64. In China, it has ratcheted up from 41 years to 73. These miracles of modern science explain how our population has soared from 3 billion in a mere 40 years.

The education of the masses may be our only salvation. Leave a married woman at home, and she has eight kids, as our great grandparents did, half of which died. Educate her, and she goes out and gets a job to raise her family?s standard of living, limiting her child bearing to one or two. This is known as the ?demographic transition.?

While it occurred over four generations in the developed world, it is happening today in a single generation in much of Asia and Latin America. As a result, fertility around the world is crashing. The US is hovering at just below the replacement rate of 2.1 children per family, thanks to immigration. But China has plummeted to 1.5, Europe is at 1.4, and South Korea has plunged as low as 1.15.

Population pressures are expected to lead to increasing civil strife and resource wars. Some attribute the genocide in Rwanda in 1999, which killed 800,000, as the bloody result of overpopulation.

Thierry Martin
05-29-2013,
?Apple will never be a consumer products company,? said John Sculley, the Apple CEO who fired Steve Jobs in 1985. Today Apple is the world?s largest and most profitable consumer products company.



go to the Mad Hedge Fund Trader's website

Highly recommended, unconventional trading service:

Trading Coach Sam Johnson demonstrates the #1 Passive Income Strategy for Traders

Thierry Martin
05-29-2013,
Stuff I?m Reading this Morning?

Late last night we got the official news on the Apple ? China Mobile deal. How big is this? Potentially explosive. (WSJ)

Meanwhile, do NOT miss the explosive TIME cover story on Carl Icahn. (TIME)

Also, here?s why sad Obama can?t have an iPhone. (Reuters)

The thing about explosive up-25% years in the stock market. (PragCap)

Explosive returns require equally explosive corrections. (Ivanhoff)

Bitcoin is exploding in China. (Xinhua)

Some really bad advice for investors in the WSJ. (RandomRoger)

Indonesia and Brazil are probably the most f***ed EM countries when the tapering begins, says JPM (I?m paraphrasing). (ETFTrends)

Secret docs leak from hot start-up Uber and now we know explosive their growth is. (ValleyWag)

Japanese stocks: Headfake or Bull Trap? (iBankCoin)

New evidence rocks scientists? conceptions of the early mating habits of humans. We were into some freaky stuff back in the day, turns out. (WSJ)

Explosive gift ideas for the techie on your list. (GQ)

Have you voted yet for this year?s Finance Charlatan of the Year? Every vote counts. (SurveyMonkey)

My book, Backstage Wall Street, available at Amazon


The Reformed Broker

Thierry Martin
05-29-2013,
The Chart of the Day is Coca-Cola Bottling Company Consolidated (COKE). I found the stock right at the top of the New High List when I sorted it for frequency. Since the Trend Spotter signed a buy on 10/17 the stock is up 8.46%.

Coca-Cola Bottling Co. Consolidated is engaged in the production, marketing and distribution of carbonated and noncarbonated beverages, primarily products of The Coca-Cola Company. This is the bottler headquartered in Charlotte, not in Atlanta.

Thierry Martin
05-29-2013,
America?s foremost authority on bubbles, Alan Greenspan, weighed in on both Bitcoin and gold today in an interview for Bloomberg Television.

Bask in the glory:

Greenspan on whether Bitcoin is a bubble:
?I guess so. Let me say that currencies to be exchangeable have to be backed by something. When we had ? when we were on the gold standard, gold and silver had intrinsic value and people would be willing to exchange their goods and services for gold or silver and wouldn?t ask any questions of where the monies came from. Alternatively, when we went into currencies, it was the backing off the issuer of the currency. In other words, if some individual had great credit standing, his checks could circulate as money. But the question is I do not understand where the backing of bitcoin is coming from. There is no fundamental issue of capabilities of repaying it in anything which is universally acceptable which is either intrinsic value of the currency or the credit or trust of the individual who is issuing the money, whether it?s a government or an individual. Individuals with very high net worth and who have great reputations could create their own currency because people would be willing to exchange their checks with others probably at par. That is not the case with bitcoin.?

On whether Bitcoin could be the new gold:
?No. Well, see that ? it has to ? it has to have intrinsic value. You have to really stretch your imagination to infer what the intrinsic value of bitcoin is. I haven?t been able to do it. Maybe somebody else can. But if ? you asked me is this a bubble in bitcoin. Yeah, it?s a bubble.?

On what has changed with investors? perception about gold this year:
?Well first of all, remember we used to be at $35 an ounce. And then even several years ago we were well under $1,000 an ounce now we?re $1,2000 or thereabouts. And to be sure, we?ve come down a bit but it?s after a very significant rise. So the issue here is that the reasons for buying gold were, one, fears of significant inflation first of all which didn?t materialize, and just generally the notion that inflation looks to be relatively stable for the indefinite future and that therefore the hedging aspects of gold are really not that all necessary at the moment. And so what you?re getting is clearly this type of problem which one would ordinarily expect when the ? the basic reasons for holding gold are not ? not that strong. My ? I think that we?re probably at a gold price now which is not all that different from where it probably would be considering that it?s, on the one hand a commodity, copper, on the other hand a monetary asset like the Swiss franc used to be before they fixed it against the euro.?

Thierry Martin
05-29-2013,
As company executives sit down to establish their 2014 strategies, they're faced with a sobering prospect: The U.S. economy is likely headed for yet another year of subpar growth. It's a theme I discussed a few weeks ago and the prospects of deeper government cutbacks, as a result of the current "sequester" policy, could even lead to even more anemic growth.

Indeed, more than half of the companies in the S&P 500 are expected to boost 2014 sales by less than 5%. Still, there are nearly two-dozen firms capable of defying economic gravity. Each of these firms is expected to boost sales at least 20% in the year ahead.

To be sure, some of these companies are resorting to acquisitions to boost sales. These include:

? InterContinental Exchange (NYSE: ICE), which is expected to more than double in size thanks to a merger with the NYSE.
? Tenet Healthcare (NYSE: THC), which is expected to see a 46% jump in revenue thanks to a recently-completed acquisition of Vanguard Health Services.
? NRG Energy's (NYSE: NRG) recent move to acquire assets from the bankrupt Edison Mission Energy will also lead to a sizable 29% spike in 2014 revenues.
? Corning's (NYSE: GLW) assumption of Samsung's share in a joint partnership should give a quick boost to the top line.
? McKesson's (NYSE: MCK) $8 billion proposed purchase of German drug wholesaler Celesio should boost sales more than 20%.
? Actavis' (NYSE: ACT) $8 billion acquisition of drug maker Warner-Chilcott is providing a solid top-line boost.
? Constellation Brands' (NYSE: STZ) June, 2013 acquisition of the U.S. arm of Mexican brewer Grupo Modelo is helping to move the sales needle.
? Total Systems and Services (NYSE: TSS) summer 2013 purchase of debit-card provider NetSpend creates an industry leader in a fast-growing segment.

Notably, almost every other fast-grower in the S&P 500 isn't resorting to deal-making and instead will likely generate robust organic growth. And as you'd assume, some of that growth will come from some of the leading lights of technology.

Thierry Martin
05-29-2013,
I received this message in my inbox recently. It brings up a good point and captures what I imagine a lot of my readers have in their minds...

"We own gobs of stocks in High-Yield Investing. Instead of having more and more new additions, would you consider adding to an existing holding?" - Lloyd F.

When you cover several exciting new investment ideas month after month, it doesn't take very long to build a large collection of stocks and bonds.

The current High-Yield Investing portfolio is diverse, but manageable. I keep close daily tabs on all of our holdings. Still, I wanted to accommodate Lloyd's request in today's essay -- not because there is a shortage of new candidates, but because this is an opportune time to revisit an old favorite. And it remains a stellar dividend payer to this day...

As they say, sometimes your best new investment idea is a stock you already own. And subscribers who have joined within the past couple of years might be unfamiliar with this particular story.

This company's progress in recent years has been nothing short of amazing. I could tell you all about it, but I'd rather show you. The chart below is simple, yet speaks volumes.

Thierry Martin
05-29-2013,
You can keep up with all of our posts by signing up for our daily e-mail. Thousands of other readers already have. Don?t miss out!

Quote of the day

Phil Pearlman, ?So we had these two gigantic bubbles and we were all affected and the culture was affected and yet we don?t really acknowledge how affected we were and how the remnants of those events shade our interpretations of present experiences.? (Phil Pearlman)

Chart of the day



Delta Air Lines ($DAL) looks like a new company. (AlphaNow)

Markets

European markets are rolling over. (The Short Side of Long)

2014 stock performance will have nothing to do with 2013. (Mark Hulbert)

Investment managers are leveraged long. (All Star Charts)

Seven reasons from Doug Kass why the market is overvalued. (Pragmatic Capitalism, TheStreet)

REITs now look relatively attractive. (Morningstar)

Strategy

AMR Corp. will be one of the few bankruptcies in which equity holders come out ahead. (WSJ)

Why wirehouse advisers should become RIAs. (InvestmentNews)

Technology

The semantic search business is not a one-horse race. (Business Insider)

Why your phone may soon see in 3D. (TechCrunch)

Investors are moving beyond Twitter ($TWTR) to find social startups. (Bloomberg)

IPOs

Thierry Martin
05-29-2013,
Dividend yield or dividend growth?

Investors are often asked to choose between one of these two types of yield plays. But it's not the right question to ask. Instead, you want to find stocks with fast-growing dividends that will eventually sport high yields.

But let's face it, so many companies in the S&P 500 were content to aggressively boost their dividends a few years back, and now seem to simply nudge the payout just a bit higher each year. Here are some examples:

Indeed, the outlook for dividend growth in the S&P 500 is likely to be much more muted in coming years, with earnings per share (EPS) growth -- not rapidly rising payout ratios -- becoming the prime determinant. But as with any rule, there are clear exceptions. Some companies appear poised for robust dividend growth in coming years, thanks to still-low payout ratios, and by the time the process is done, dividend yields (based on today's prices) are likely to be stellar.

Here are three companies poised for great dividend growth.

Thierry Martin
05-29-2013,
Random Thoughts


Tuesday was a bit of the good, the bad, and the ugly.

The Quack sold off a tiny bit. So far, it only appears to pulling back from its recent persistent breakout from a base.

The Ps sold off fairly hard but were able to recover to close off their worst levels. For the day, they lost a little around 1/3%. This action keeps them stuck in a sideways range. Net net, they haven't made any progress since mid-November. This isn't the end of the world but as a momentum guy, I'd sure like to see new highs.

The Rusty probed into its prior breakout levels before recovering. Nevertheless, it still ended down around ?%.

The Rusty reflected what happened internally. The selling was fairly broad based.

The Banks got whacked pretty hard. The Regionals still look pretty good here-so far they only appear to be pullback back. However, any additional weakness would be concerning.

There was some ugliness out there. Krispy Kreme Doughnuts got whacked over 20%--I think they found out that I was on a low carb diet.

Thierry Martin
05-29-2013,
What jumps out at you from the FactSet chart below? I?ll tell you the first thing I noticed was how we?re still treating the Financial sector like a little bitch.

We?re giving the financials virtually no benefit of the doubt on their forward earnings multiple for the year ahead.

The banks are expected to be growing their earnings by 11.5% in 2014 according to the consensus, that?s faster than the S&P 500′s expected earnings growth rate of 10.8% and a better pace than what?s expected for five other sectors (Industrials, tech, Staples, Healthcare and Utilities). In addition, many of the large bank stocks haven?t even come close to recovering in share price from 2008 (the XLF is still down 45%) while they have done a ton of work repairing their balance sheets and digging deep for operational efficiencies.

In addition, the banks will be the beneficiary of a steepening yield curve if and when rates creep up in the coming year. They make a ton of money as that process happens, margins expand meaningfully.

And yet ? we?re rewarding that set-up with the lowest multiple in the markets, lower than what we?re giving the utilities for god?s sake.

That?s quite a disconnect.

Thierry Martin
05-29-2013,
Stuff I?m Reading this Morning?

Brokers have sold more than $20 billion worth of non-traded REITs and have racked up hundreds of millions in private placement commissions so far this year. Probably because these were the best possible investments for their clients. (InvestmentNews)

?Our investment team has a combined 138 years of experience.? Yeah, okay. (ResearchPuzzle)

How foreign stocks can help reduce a portfolio?s volatility. (RickFerri)

Seven reasons why Kass is Kautious. (PragCap)

Why REITs have acted terribly this year, up just 2.2% in 2013. (Morningstar)

My book, Backstage Wall Street, available at Amazon

Thierry Martin
05-29-2013,
?Everybody has a plan until they get punched in the nose,? said former heavyweight champion, Mike Tyson.


go to the Mad Hedge Fund Trader's website

Highly recommended, unconventional trading service:

Trading Coach Sam Johnson demonstrates the #1 Passive Income Strategy for Traders

Thierry Martin
05-29-2013,
The Chart of the Day is Cybernoics (CYBX). I found the stock by sorting today's New High List for frequency, then used the flipchart feature to review the charts. Since the Trend Spotter signaled a buy on 10/11 the stock gained 35.36%.

They design, develop and market medical devices for the treatment of epilepsy and other debilitating neurological disorders using a therapy, vagus nerve stimulation. The company's initial target market is epilepsy, the world's second most prevalent neurological disorder, which is characterized by seizures. Vagus nerve stimulation with the Cyberonics NCP System was approved for use as an adjunctive therapy in reducing the frequency of seizures in adults and adolescents with medically refractory partial onset seizures.