Dave Landry's Market in a Minute - Monday, 12/2/13

[Thierry Martin]

A long holiday weekend is a great time to catch up on some items that we passed up on during the week. Also check out this holiday deal on a Google Chromecast including a $6 credit for use on Google Play. Thanks for checking in.

Investing

The latest memo from Oaktree Capital ($OAK) chairman Howard Marks. (Oaktree Capital)

An interesting paper: US Inflation and Returns in Global Stock and Bond Markets. (DFA via IndexUniverse)

An interview with Jon Stein of online money manager Betterment. (RIABiz)

Finance

Does Nanex get it right on the flaws of high frequency trading? (Bloomberg)

Under what conditions are markets efficient? (China Financial Markets)
A history of the first real options trade. (Turnkey Analyst)

Economics

Joel Mokyr talks with Russ Roberts on the fallacy of economic stagnation. (EconTalk)

Insight into why the poor tend to make poor choices could lead to a more robust economics. (FT Alphaville)

Business

How the Pritzker famliy broke up its vast holdings in an orderly way. (WSJ)

Italian candy maker Ferrero SpA has no plans to go public any time soon. (WSJ)

Startups

What have we learned from 23andMe? (Pando Daily)

Priceonomics and the business of ?structured data crawling.? (TechCrunch)

On the great unbundling of venture capital. (Dave Lerner)

An interview with Marc Andreesssen. (Fortune)

Technology

The triumph and tragedy of IBM?s ($IBM) OS/2. (ArsTechnica via @fmanjoo)

How Yahoo ($YHOO) went from technology-leader to laggard. (GigaOM)

Meet the Amazon ($AMZN) whisperer. (Fast Company)

Food

Skim milk is awful. (The Atlantic)

The technological search for an egg substitute. (WSJ)

Booze

Some surprising innovations in beer can design. (Quartz)

America loves really expensive bourbon. (Businessweek)

Young Americans are on the margin drinking less alcohol. (The Atlantic)

Health

The power of a daily dose of exercise. (Well)

Sleep therapy could play a role in helping ease depression. (NYTimes)

Psychology

Why are first-person shooter games such ?absorbing experiences?? (New Yorker)

Good luck if you think you are immune to advertising. (Aeon)

How to raise thankful kids. (Slate, Motherlode)

When superstition works. (WSJ)

Higher education

College is not just another ?consumer purchase.? (Big Think)

How academia behaves like a drug cartel. (Slate)

Sports

Will Tim Tebow ever play in the NFL again? (SI)

All hail the new world chess champion. (Time)

Why top golf recruits are choosing to go to cold-weather universities. (WSJ)

Grooming secrets of the NBA. (WSJ)

Now former hockey players are suing the NHL over head injuries. (NYTimes, Grantland)

Books

An excerpt from Gregory Zuckerman?s The Frackers: The Outrageous Inside Story of New Billionaire Wildcatters. (WSJ)

[Thierry Martin]

For investors looking to buy stock in a clothing retailer, it would normally be a no-brainer to consider stalwarts like Wal-Mart (NYSE: WMT), Target (NYSE: TGT), well-known dollar stores, or other discount merchandisers.

But things aren't normal, and they haven't been for years.

Since the economy just can't seem to shift into a higher gear, I'd avoid Wal-Mart and the other types of clothing outlets I just mentioned. Their sales come mainly from middle- and lower-income consumers, the people who have suffered most in the years since the financial crisis and who continue to see their spending power dwindle.

Rising costs, stagnant or shrinking wages, and lousy or non-existent benefits are squeezing these groups hard, Wal-Mart and other discounters could well be facing years of erosion in revenue and earnings growth rates.

At this point, for example, Wal-Mart's sales are growing at only about 3% a year, from around $406 billion in 2009 to just over $473 billion now. That's pretty anemic compared with 2004 through 2008, when sales rose at a healthy 7.9% clip. The way things are going, I wouldn't be surprised if annual sales and profits at Wal-Mart and a lot of other discounters stagnated completely or even began to contract.

In this economy, I'm much more optimistic about a far smaller but well-established and more specialized apparel outlet with more-profitable customers. At this company, sales have actually accelerated since the financial crisis, climbing almost 8% a year from about $8.6 billion in 2009 to nearly $12.5 billion currently. That's even better than the solid 6% growth rate of 2004 through 2008.

A key reason this company has been doing so much better is that it caters to higher-end customers who base their purchasing decisions mainly on quality, fashion and service -- not price. And they can shop that way because, well, they're generally better off than middle- and lower-income consumers.

The company I'm referring to is Nordstrom (NYSE: JWN), which began as a shoe retailer in Seattle in 1901. Today, it positions itself as a provider of "affordable luxury" -- high quality without too much extravagance.

[Thierry Martin]

Random Thoughts


The market had a little pre-holiday cheer.

The S&P didn't set the world on fire but did manage to close at all-time highs.

The Quack looked better. It gained well over ?% to close at multi-year highs.

The Rusty also managed to tack on over ?%. It closed at all-time highs.

Internally things looked pretty good. This isn't a shocker with strong Rusty. Many areas remain in trends and at or near new highs such as Defense, Regional Banks, Conglomerates, and Health Services.

The sideways Semis put in a decent rally. They appear to be trying to break free from their range.

Once again, selected Solar did well on Tuesday (we are long TAN).

I tried to come up with something new to say but then realized with the market continuing to make new highs, there's not much new to say. With that said, it's a cntrl-a, cntrl-c, and a cntrl-v:

So, things are looking pretty good. Should we buy with both fists? Well, since the methodology requires a pullback and the indices and most sectors are right at new highs, I'm not seeing a lot of meaningful longs for this cycle (yet). On follow through and a pullback we will. When markets are banging out new highs, it's a get ready to get ready for me. In the meantime, you want to manage existing longs. Take partial profits as offered (see Layman's for money & position management planning) just in case the market does not follow through. On the short side, I'm still seeing a few that are setting up. Avoid getting too bearish but if you really really like a setup, then take it. See my 11/26/13 column for a philosophical discussion on this.

Futures are firm pre-market.

Shortened session today which is notorious for being then and choppy. So, pick your spots carefully.

Click here to watch today's Market in a Minute.

Best of luck with your trading today!

Dave

[Thierry Martin]

I have a large number of readers who have been with me since the launch of my premium advisory, The Daily Paycheck, back in January 2010. They watched as I slowly transformed the $200,000 cash stake from my company into the $291,776 portfolio it is today.

New subscribers are now greeted with a portfolio of more than 50 securities. And the questions I get asked most are 1) How do I get started? and 2) Can I use this strategy if I have less than $200,000 to invest?

The short answers to those questions are: slowly and absolutely.

But I want to spend a little time today explaining the "science" behind The Daily Paycheck strategy and how you can use this strategy to meet your individual needs.

It was as much a surprise to StreetAuthority co-founder Paul Tracy as it was to me. As an experiment, Paul tried to build a personal portfolio of dividend paying stocks to see if he could get 30 dividend checks in a month. But he achieved far more than the joy of receiving dividends every day. Paul enrolled all his securities in an automatic reinvestment program through his online brokerage account. And before long, Paul's experiment was beating the market.

Both Paul and I were familiar with the power of compounding growth from dividend reinvestment. As you can see from the chart below, if you invested $20,000 in securities paying a 7% yield, after 10 years your portfolio would be worth $39,343 with reinvested dividends.

And if your holdings happened to boost their dividends by just 5% annually -- something even a giant blue chip like AT&T (NYSE: T) has been able to beat -- your portfolio would be sitting at $46,475. That's an increase of 132.4%. And that's assuming zero capital gains. That isn't bad, especially when you consider the S&P 500 Index lost 26.5% in the ten-year period ended in 2009.

You can see for yourself in the chart below...

[Thierry Martin]

Not a Bubble, Just the Old Normal

Watch as Eric D. Nelson, CFA, of Servo Wealth Management demolishes the bubble meme in a new post at his blog this week?

Probably the best method of ?bubble detection?, to the extent such a thing is even possible, is to simply observe an investment?s recent past performance history to measure how far in excess of the long-term average it has been. For example, Gold experienced a ten-year run starting in 1971 where it returned almost 32% per year. US small cap stocks earned 27% per year for the decade ending in 1984. And Japanese stocks produced over 28% per year returns in the 1980s. All of these results were well above long-term expectations and unsustainable, as each market eventually ?reverted to the mean.? Have we reached this point again?

Table 1 looks at three different investment portfolios: a traditional US total stock index, followed by two more diversified asset class mixes?an all-stock allocation (?Equity?) and a balanced stock and bond combination (?Balanced?).

For the recent ten-year period, investment returns have been healthy despite the debilitating setback in 2008. The US Total Stock Index earned almost 8% per year. But this is far from an alarming rise in prices, as the average over the previous 75 years was 1.7% higher, at +9.6% per year. So far, so good. If lower-than-average returns have created a market bubble, that would certainly be the first time.

Josh here ? Stocks are supposed to go up over 10-year periods and they almost always do ? 88% of rolling 10-year periods over the last 89 years have shown a positive return for the US market. Looking at the last ten years, even with the inclusion two mega rallies and a massive bear market, we?re just now getting back to historical return averages.

Shall we pause here and reverse or shoot all the way through to a real bubble? That?s the more important question.

Source:

[Thierry Martin]

Quote of the day

Albert Edwards, ?I have never seen the sell-side predict a recession. There are a number of reasons for that but key among them is the personal career risk of calling a recession and being wrong.? (Buttonwood?s notebook)

Chart of the day

[Thierry Martin]

This week?s must-read is the latest memo from Oaktree?s Howard Marks, in which the investing legend ruminates on the current state of risky behavior in the markets.

The executive summary is that he?s seeing a lot of the same activities/products that made him cautious in 2006-2007 ? notably a large rise in debt to fund buybacks/dividends and the return of covenant-lite lending (the debt market equivalent of ?Don?t worry, I?m sure you?re good for it.?).

With that said, it could still be early enough in the cycle to remain constructive on the big picture. There are plenty of ways in which market participants are acting more chastely than seven years ago ? notably the absence of banks building out new derivatives and the overall subdued totals in leverage built up in the system?so far.

Marks doesn?t claim an ability to pinpoint the beginnings and ends of these credit cycles ? but the exact timing is less important to him than just having an overall awareness of their inevitability.

Without further ado, I send you over:
The Race is On (Oaktree Capital)