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Hot Links: The Cartel
Stuff I'm Reading this Morning...
Hedge funds cutting their bullish bets on gold. (Bloomberg)
"In short, it looks as if developed economies? central banks will unleash further monetary easing on their economies and hence the global economy." (BusinessInsider)
Jason Zweig: There are worse things on earth than carrying cash at a negative return in a bull market. (WSJ)
Look who's hiring and spending again! State and local governments become a tailwind. (CalculatedRisk)
For some reason, JPMorgan and other big banks may be rethinking having their traders in chatrooms with names like "The Cartel". (WSJ)
Howard Marks, Warren Buffett, Josh Harris and other value investors made the crisis their bitch. (NYT)
How many simple simon traders just got their heads blown off by that false inverse head-n-shoulders in the TLT? (PriceActionLab)
Oh no, they're writing articles about how Mom & Pop are buying stocks again! Probably a guaranteed top because we're all such clever contrarians, aren't we. (WSJ)
The secret to investing is that there is no secret to investing. (ValueWalk)
When Wall Street packages managed futures for their retail clients, the result is billions of fees paid and zero gains leftover for investors. And somehow you're surprised by this. Are you new here? (WaPo)
Vitaliy Katsenelson's favorite stock to play the Bakken Shale. (InstitutionalInvestor)
All those "smart beta" ETFs based on backtesting the last 30 years downplay how unique the environment has been. (FocusOnFunds)
Investors are using the GREK ETF to frontrun Greece's entry into MSCI's Emerging Markets indices. (ETFTrends)
Morgan Stanley wealth manager arrested for secretly filming multiple girls having sex with him. (DailyNews)
How badass is Amazon? They've just convinced the US Postal Service to begin making Sunday deliveries for them. (NYT)
I LOVE this photo series of once-great bank buildings repurposed for the McConomy. (BusinessInsider)
REMINDER: Backstage Wall Street is now on Kindle!
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Profit From Apple's Success With This 'Secret' Stock
Apple (Nasdaq: AAPL) is one of the great high-tech success stories. Led by the visionary, charismatic and sometimes controversial Steve Jobs until his recent untimely death, Apple has become one of the world's leading companies. After starting out as a personal computer maker, Apple is now best known for its mobile devices, which have catapulted it from a cult brand into the mainstream.
In less than five months, AAPL shares have soared from below $400 to about $520 currently. This 30% increase is impressive but well below the stock's all-time high above $700 last year. Unfortunately for many investors, Apple's success has made trading its shares difficult. You have to be swinging a big stick to be able to commit $500,000-plus to trade just 1,000 shares.
Options can be used as alternative tools to capture profits from Apple's moves, but there is another, simpler way to profit from its success -- and that is to purchase shares in companies that supply products and services to Apple.
When these products or services are a critical part of the supply chain for Apple's products, the company supplying them may ride Apple's coattails to great success. The key is to identify a supplier that is reasonably priced and has a multi-year contract with Apple, which helps to ensure the longevity of the relationship. And the lower price enables investors with practically any account size to invest in Apple's success.
GT Advanced Technologies (Nasdaq: GTAT) is one such Apple supplier that has tremendous upside potential. The New Hampshire-based company boasts a market cap of $1.2 billion and trailing 12-month revenue of $438.5 million. It specializes in crystal growth equipment for the electronic, solar and LED industries worldwide.
Apple just inked a multiyear deal to purchase sapphire material from GTAT. This will likely be the impetus to lift the share price. Apple is giving GTAT a little less than $600 million to help it get its new sapphire furnace production facility up and running in Arizona. GTAT plans on employing over 700 people in this endeavor.
Apple uses sapphire material to create scratchproof glass screens. Favored for its hardness and clarity, sapphire glass has long been used as the crystal on high-end wristwatches and in other luxury brands. GTAT beat competitor Corning (NYSE: GLW) and its Gorilla Glass for the contract.
GTAT projects that the deal will boost earnings and revenue, which is expected to ramp up to $600 million to $800 million in 2014. The sapphire segment of the company is forecasted to contribute 80% of the 2014 revenue.
GTAT has been struggling primarily due to its core solar business. Revenue in the latest quarter was just over $40 million, and net income was a loss of more than $38 million. Apple's contract should change this weak performance into a long-term winner.
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Profit From Apple's Success With This 'Secret' Stock
Apple (Nasdaq: AAPL) is one of the great high-tech success stories. Led by the visionary, charismatic and sometimes controversial Steve Jobs until his recent untimely death, Apple has become one of the world's leading companies. After starting out as a personal computer maker, Apple is now best known for its mobile devices, which have catapulted it from a cult brand into the mainstream.
In less than five months, AAPL shares have soared from below $400 to about $520 currently. This 30% increase is impressive but well below the stock's all-time high above $700 last year. Unfortunately for many investors, Apple's success has made trading its shares difficult. You have to be swinging a big stick to be able to commit $500,000-plus to trade just 1,000 shares.
Options can be used as alternative tools to capture profits from Apple's moves, but there is another, simpler way to profit from its success -- and that is to purchase shares in companies that supply products and services to Apple.
When these products or services are a critical part of the supply chain for Apple's products, the company supplying them may ride Apple's coattails to great success. The key is to identify a supplier that is reasonably priced and has a multi-year contract with Apple, which helps to ensure the longevity of the relationship. And the lower price enables investors with practically any account size to invest in Apple's success.
GT Advanced Technologies (Nasdaq: GTAT) is one such Apple supplier that has tremendous upside potential. The New Hampshire-based company boasts a market cap of $1.2 billion and trailing 12-month revenue of $438.5 million. It specializes in crystal growth equipment for the electronic, solar and LED industries worldwide.
Apple just inked a multiyear deal to purchase sapphire material from GTAT. This will likely be the impetus to lift the share price. Apple is giving GTAT a little less than $600 million to help it get its new sapphire furnace production facility up and running in Arizona. GTAT plans on employing over 700 people in this endeavor.
Apple uses sapphire material to create scratchproof glass screens. Favored for its hardness and clarity, sapphire glass has long been used as the crystal on high-end wristwatches and in other luxury brands. GTAT beat competitor Corning (NYSE: GLW) and its Gorilla Glass for the contract.
GTAT projects that the deal will boost earnings and revenue, which is expected to ramp up to $600 million to $800 million in 2014. The sapphire segment of the company is forecasted to contribute 80% of the 2014 revenue.
GTAT has been struggling primarily due to its core solar business. Revenue in the latest quarter was just over $40 million, and net income was a loss of more than $38 million. Apple's contract should change this weak performance into a long-term winner.
GTAT is expected to pay back Apple's nearly $600 million by 2020. This fact proves that Apple has a long-term commitment to sapphire glass and GTAT. Apple's continued support of the company should lift the share price.
I think an investment in GTAT at these low levels could pay off big.
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I Am The One Who Blogs: TRB Turns Five
This month, The Reformed Broker blog turns five years old.
I'm not exactly sure which day in November of 2008 was my first day and I forgot what my first post was about. I've written more than 8,000 posts here since then, I can't say I remember each of them but my hope is that I at least remember the kernel of truth of the realization that each of them have been built around.
Because that's what this is all about, after all.
Each year on TRB's blogiversary, I do a bit of an internal inventory, taking stock of what's changed over the prior year. This has been a pretty momentous one for me.
In 2013, I became a full-time cast member of both Fast Money and the Halftime Report on CNBC, arguably the two most interesting and dynamic shows in all of financial TV, warts and all. Each day, I get to interview the world's greatest market minds as they pass through - El-Erian, Gundlach, Arnott, Gabelli, Wein, Roach, Acampora, Icahn, Bogle, Birinyi, Yamada, the list is endless - almost every day another multi-billion dollar asset manager or strategist whose brain I can pick. It's an amazing experience, I'm seeing the markets through a lens that I could never have imagined years ago.
I've surpassed 60,000 followers on Twitter and have seen millions of unique users come through the blog over the last year. I've been named to all kinds of awesome lists:
Top 140 Twitter Feeds of 2013 (TIME)
Most Innovative People Under 40 (Business Insider)
Bloomberg's Twitter A-List (Think Advisor)
Top Financial Advisors on Twitter (WSJ)
106 Finance people to Follow (Business Insider)
There are more, I'm never not blown away and grateful, especially when I respect so many of the other people on these lists. I really appreciate the members of the media and the press who continue to reference my stuff and link to the site. It means a lot to me personally.
Barry and I also launched our own firm this past year, turning our financial advisory and asset management practice into its own RIA. The preparation and hard work that went into this cannot be overstated, we killed ourselves to get every detail right from the outset - to make sure there would be minimal disruption to the clients. It worked, thank God. Everything has gone better than we could have hoped for. We owe a lot of people.
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I Am The One Who Blogs: TRB Turns Five
This month, The Reformed Broker blog turns five years old.
I'm not exactly sure which day in November of 2008 was my first day and I forgot what my first post was about. I've written more than 8,000 posts here since then, I can't say I remember each of them but my hope is that I at least remember the kernel of truth of the realization that each of them have been built around.
Because that's what this is all about, after all.
Each year on TRB's blogiversary, I do a bit of an internal inventory, taking stock of what's changed over the prior year. This has been a pretty momentous one for me.
In 2013, I became a full-time cast member of both Fast Money and the Halftime Report on CNBC, arguably the two most interesting and dynamic shows in all of financial TV, warts and all. Each day, I get to interview the world's greatest market minds as they pass through - El-Erian, Gundlach, Arnott, Gabelli, Wein, Roach, Acampora, Icahn, Bogle, Birinyi, Yamada, the list is endless - almost every day another multi-billion dollar asset manager or strategist whose brain I can pick. It's an amazing experience, I'm seeing the markets through a lens that I could never have imagined years ago.
I've surpassed 60,000 followers on Twitter and have seen millions of unique users come through the blog over the last year. I've been named to all kinds of awesome lists:
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Sunday links: managing mistakes
Quote of the day
Todd Wenning, ?The key to managing investment mistakes, as I?ve come to learn the hard way, is to admit them quickly, correct the mistake, and use the expensive lesson to improve your investment process.? (Clear Eyes Investing via Monevator)
Chart of the day
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Chilling Signs of a Market Top
As one of the original wise men of the financial blogosphere, David Merkel has always been a crucial read for me.
In 2004, he had done a magnificent piece on the fundamentals of market tops for TheStreet.com's Real Money pay site. Thankfully, Barry excerpted the post for The Big Picture back in 2006 so it exists on the modern web, outside the catacombs. Tom Brakke unearthed it this morning and I got the chills reading it just now - all of the fundamental signs of a top that David discussed nine years ago can be observed in the markets today.
It's uncanny how things never change. Read this and tell me you don't see these exact same things playing out as we speak.
Here's David (via Barry via Tom, lol)...
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Item 1: The Investor Base Becomes Momentum-Driven
Valuation is rarely a sufficient reason to be long or short the market. Absurdity is like infinity. Twice infinity is still infinity. Twice absurd is still absurd. Absurd valuations, whether high or low, can become even more absurd if the expectations of market participants become momentum-based. Momentum investors do not care about valuation; they buy what is going up, and sell what is going down.
You?ll know a market top is probably coming when:
a) The shorts already have been killed. You don?t hear about them anymore. There is general embarrassment over investments in short-only funds.
b) Long-only managers are getting butchered for conservatism. In early 2000, we saw many eminent value investors give up around the same time. Julian Robertson, George Vanderheiden, Robert Sanborn, Gary Brinson and Stanley Druckenmiller all stepped down shortly before the market top.
c) Valuation-sensitive investors who aren?t total-return driven because of a need to justify fees to outside investors accumulate cash. Warren Buffett is an example of this. When Buffett said that he "didn?t get tech," he did not mean that he didn?t understand technology; he just couldn?t understand how technology companies would earn returns on equity justifying the capital employed on a sustainable basis.
d) The recent past performance of growth managers tends to beat that of value managers. In short, the future prospects of firms become the dominant means of setting market prices.
e) Momentum strategies are self-reinforcing due to an abundance of momentum investors. Once momentum strategies become dominant in a market, the market behaves differently. Actual price volatility increases. Trends tend to maintain themselves over longer periods. Selloffs tend to be short and sharp.
f) Markets driven by momentum favor inexperienced investors. My favorite way that this plays out is on CNBC. I gauge the age, experience and reasoning of the pundits. Near market tops, the pundits tend to be younger, newer and less rigorous. Experienced investors tend to have a greater regard for risk control, and believe in mean-reversion to a degree. Inexperienced investors tend to follow trends. They like to buy stocks that look like they are succeeding and sell those that look like they are failing.
g) Defined benefit pension plans tend to be net sellers of stock. This happens as they rebalance their funds to their target weights.
Item 2: Corporate Behavior
Corporations respond to signals that market participants give. Near market tops, capital is inexpensive, so companies take the opportunity to raise capital.
Here are ways that corporate behaviors change near a market top:
a) The quality of IPOs declines, and the dollar amount increases. By quality, I mean companies that have a sustainable competitive advantage, and that can generate ROE in excess of cost of capital within a reasonable period.
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Saturday links: personal finance for engineers
The weekend is a great time to catch up on some long form items that we passed up on during the week. Thanks for checking in.
Investing
Personal finance for (Twitter) engineers. Advice from Wealthfront. (Business Insider)
An interview with Michael Mauboussin author The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing on the role of luck and
skill in investing. (Forbes also Inc.)
Morgan Housel talks with Carl Richards, author of The Behavior Gap: Simple Ways to Stop Doing Dumb Things With Your Money. (Motley Fool)
Can Legos ever be an investment? (Monevator)
The story of Jesse Livermore, the greatest trader who ever lived. (Crossing Wall Street)
Finance
Some advice for young investment professionals. (A Dash of Insight)
David Swensen does not have nice things to say about Wall Street. (Yale Daily News via @m_c_klein)
A rave review for A Giant Cow-Tipping by Savages: The Boom, Bust, and Boom Culture of M&A by John Weir Close. (Economic Principals)
How to use the Heath brothers? book Switch: How To Change Things When Change Is Hard to drive client behaviors. (Nerd?s Eye View)
Economics
A dozen investors comment on the folly of macroeconomic forecasting. (25iq)
What can we learn from the Great Depression. (Free exchange)
John Kay recommends five books on ?economics in the real world? including David Landes? The Wealth and Poverty of Nations. (Five Books)
Technology
What can we learn from 37 billion dollar startups launched since 2003. (TechCrunch also A VC, Nabeel Hyatt, Version One Ventures)
The genius of Twitter ($TWTR) is that harnesses some very basic human impulses. (Businessweek)
Because of the use of autopilot, pilots are ?forgetting how to fly.? (The Atlantic)
Energy
Technology is disrupting the electric utility model. (The Atlantic)
Why diesel is more expensive than gas in the US. (Business Insider)
An excerpt from Gregory Zuckerman?s The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters. (The Atlantic)
Food
The hunt for a better egg. (WSJ)
The legacy of the late chef Charlie Trotter. (NYTimes)
Sports
Why kids are losing interest in baseball. (The Atlantic)
What would happen if baseball went to a 16-game schedule? (Joe Posnanski via kottke)
What it is like to be a minimum wage player in Major League Soccer. (BuzzFeed)
Entertainment
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Saturday links: personal finance for engineers
The weekend is a great time to catch up on some long form items that we passed up on during the week. Thanks for checking in.
Investing
Personal finance for (Twitter) engineers. Advice from Wealthfront. (Business Insider)
An interview with Michael Mauboussin author The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing on the role of luck and
skill in investing. (Forbes also Inc.)
Morgan Housel talks with Carl Richards, author of The Behavior Gap: Simple Ways to Stop Doing Dumb Things With Your Money. (Motley Fool)
Can Legos ever be an investment? (Monevator)
The story of Jesse Livermore, the greatest trader who ever lived. (Crossing Wall Street)
Finance
Some advice for young investment professionals. (A Dash of Insight)
David Swensen does not have nice things to say about Wall Street. (Yale Daily News via @m_c_klein)
A rave review for A Giant Cow-Tipping by Savages: The Boom, Bust, and Boom Culture of M&A by John Weir Close. (Economic Principals)
How to use the Heath brothers? book Switch: How To Change Things When Change Is Hard to drive client behaviors. (Nerd?s Eye View)
Economics
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This Busted IPO Has 50% Upside
By many measures, 2013 is shaping up to be the best year for initial public offerings (IPOs) since 2007.
The volume of new offerings has surged, and hot new issues such as FireEye (Nasdaq: FEYE), Rally Software (Nasdaq: RALY) and Epizyme (Nasdaq: EPZM) have already bagged triple-digit gains. This week's well-received IPO from Twitter (NYSE: TWTR) is merely icing on the cake.
Yet amid the good news, some IPOs have been duds. Companies with short track records or an open-ended path to operating losses have been tossed in the IPO dust bin.
But in the rubble, you can find some deep value plays -- and building products firm Ply Gem Holdings (NYSE: PGEM) is one of them. The recent IPO has traded down but now holds considerable upside.
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