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Stuff I?m Reading this Morning?
They faked the jobs number to get Obama elected last year ? John Crudele (NYP)
Financial TV Wars Heat Up: Maria Bartiromo to Fox Business! Someone keep an eye on Cramer! (NYT)
A masterful thrashing of the ?Stocks are a Bubble? argument. (MacroMan)
How Rob Bennett became the most hated financial blogger on the internet. (ValueWalk) and (JoeTaxpayer)
Hot software stock Workday has had a juicy pullback, is this a good entry? (RiskReversal)
BernankeCare is causing pockets of the market to act strangely. (Bloomberg)
Five years of QE and the distributional effects. (SoberLook)
The ?alternative currency? that is Bitcoin has just crashed again. I?m converting my savings now? (BusinessInsider)
?but what if the Bitcoin Bubble is just beginning? (MebaneFaber)
Another strike against actively managed mutual funds: The Payout. (RickFerri)
Wal-Mart?s running a food drive for its own employees is easily the most disgusting thing I?ve seen all year. (TheAtlantic)
James Surowiecki: Okay but seriously, how are all these web businesses going to keep giving the product away for free? (NewYorker)
Oxford names its Word of the Year for 2013: (MentalFloss)
Cindy Crawford at age 47. Get down on your knees, boy, you?re in the presence of a goddess. (Egotastic)
REMINDER: Backstage Wall Street is now on Kindle!
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3 Stocks To Sell Before The Next Meltdown
The major indices keep hitting new all-time highs, and as a trader, that makes life pretty easy. Basically, you have a bullish tailwind at your back that can forgive your loser picks, while at the same time helping your winners move up nicely.
Indeed, in this era of quantitative easing, which is likely to continue based on the Senate testimony last week of Federal Reserve chair nominee Janet Yellen, I think it makes more sense than ever to buy the "air pockets" in this market. Yet there are some stocks that are just a bit too risky here and probably should be sent packing from your portfolio.
I alerted readers to one such stock earlier this month when I said tech giant Cisco Systems (NASDAQ: CSCO) was likely on the downslope. On Thursday, the stock vindicated my call, as it plunged as much as 13.5% after a dreadful earnings report that missed expectations and a warning that next quarter's revenue would drop 8% to 10% from the same period last year.
In addition to Cisco, there are some other stocks that have performed very well of late that I suspect could be sell-off targets as we head toward the end of the year.
This selling pressure is likely to come from what I've called the "performance protection trade," meaning that hedge funds and professional traders would sell them to beef up their 2013 returns. Other factors could include a rotation out of a hot sector, or possibly a faulty earnings report from a sector bellwether that taints a particular group.
Here are three stocks that I think investors should sell before any potential meltdown:
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Rubbing Shoulders with ?The 1%? at Incline Village
If you really want to get a read on how ?the 1%? are faring these days, take a ski vacation to the tony hamlet of Incline Village on the pristine shores of Nevada?s Lake Tahoe.
Each morning, I trekked to Starbucks, one of the few local sources for the Wall Street Journal and the New York Times. There, trophy wives line up to buy their chai tea lattes, all tall, thin, and blonde, wearing designer sunglasses and snow boots, as if produced from a Gucci cookie cutter. The parking lot is jammed with Range Rovers and Cadillac Escalades.
Keeping up with the Jones?s here on fabled Lakeshore Drive can be quite a task, especially when they are populated by such names as Oracle?s Larry Ellison, casino mogul, Steve Wynn, and Saudi arms dealer, Adnan Kashoggi. Ellison alone is thought to have poured $200 million into his mountain retreat. Some of these compounds offer private beach lodgings for bodyguards and dog groomers. Junk bond king, Michael Milken, springs for the cost of the town?s annual Fourth of July fireworks display as it coincides with his birthday.
In the ultimate feat of hubris one upsmanship, one billionaire is converting the profits from his check cashing business to build a $150 million, 36,000 square foot residence that looks like a convention center. He has ruffled the feathers of locals by chopping down every ancient pine and cedar tree on the property to max out the square footage, violating multiple town ordinances. Who knew that cashing checks was so profitable?
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November 19, 2013 ? Quote of the Day
?America?s colleges and universities churn out lots of liberal arts graduates?.By and large, the economy doesn?t need all these generals. We?re not training enough scientists and engineers. The high schools used to churn out enough people with technical skills in the fifties and sixties, but not so today. It?s cheaper just to prepare everyone to go to college and pretend that a liberal arts education is going to solve everyone?s problems,? said Professor Peter Morici at the University Of Maryland School Of Business.
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Barchart.com's Chart of the Day - Kona Grill (KONA) for Nov 18, 2013
The Chart of the Day is Kona Grill (KONA). I found the stock near the top of the New High List after I sorted for frequency. The stock hit 18 new highs in the last 20 sessions. since the Trend Spotter signaled a buy on 9/20 the stock is up 36.13%.
Kona Grill restaurants offer freshly prepared food, personalized service, and a warm, contemporary ambiance that creates an exceptional, yet affordable, dining experience. Kona Grill restaurants serve a diverse selection of mainstream American dishes as well as a variety of appetizers and entrees with an international influence.
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If Slow Growth Is Here To Stay, These Are The Stocks To Own
Coming out of World War II, few Americans could have known about the great era of prosperity soon to arrive.
From 1946 through 1973, our economy expanded by a 3.8% annual pace. Sure, there were a few recessions along the way, but the rapid rise of the middle class, which enjoyed a rising standard of living, helped set the stage for the world's greatest economy. Roughly one-fourth of all global economic activity takes place on U.S. shores.
But as I noted last week, the U.S. is now in its sixth year of weak economic growth. Economists are growing increasingly concerned that we've entered into an extended period of anemic growth. Indeed, the sole purpose of the Federal Reserve's massive stimulus programs was to revive the economy's "animal spirits." But the economy has yet to respond. The Fed is pushing on a string.
Investors may have a hard time seeing this notion as the stock market moves steadily higher. Profits are still rising, thanks to lean corporate expenses, but fully half of the companies in the S&P 500 are expected to boost sales by less than 5% next year.
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This Simple Tool Could Save Your Portfolio
Last week, stock prices reacted to the news. Stock picking could become more important as the market reaches new highs, and one technical indicator could be helpful to traders looking to avoid downside surprises.
It Is Becoming a Market of Stocks
Fed chair nominee Janet Yellen confirmed that quantitative easing and low interest rates should continue for the foreseeable future. Traders seem to believe this is good news, and SPDR S&P 500 (NYSE: SPY) gained 1.56% last week.
The ETF has now closed up six weeks in a row. SPY has had a winning streak of this length 15 times in the past 20 years. In the short term, this winning streak offers us little information. The next week closed up seven times and lower eight times. Longer term, SPY was up six months later 80% of the time.
The winning streak is interesting, but in the long run, stock prices are driven by earnings, and the trend in earnings is likely to determine whether prices are higher or lower six months from now.
Earnings season came to an unofficial end when Wal-Mart (NYSE: WMT) reported last week. On this front, the results were mixed. Among the large-cap stocks in the S&P 500, Standard & Poor's reports 66.59% beat earnings estimates, the best beat rate in at least six quarters.
For the broader market, according to Bespoke Investment Group, only 58.6% of 2,268 companies beat expectations. Bespoke noted, "Since the bull market began in March 2009, this is the second worst earnings beat rate we've seen. Only Q1 of this year was worse."
This mixed picture is typical of the challenge confronting investors. Success requires sifting through data that can be conflicting to find what matters the most to traders at any particular time. This week, earnings seemed to drive the price action in specific stocks, but the general trend in the market may have been set by comments from Yellen, the woman who will replace Ben Bernanke as head of the Federal Reserve.
Yellen is expected to be much like Bernanke from the perspective of investors. As she explained in testimony to the Senate, interest rates should remain low and quantitative easing will continue in an effort to lower unemployment.
This environment is generally good for companies, and earnings are likely to continue drifting higher, but in an unpredictable way. Investment success will most likely come from getting the larger trend right and being in the best stocks. Relative strength (RS) can be a valuable tool in this market environment.
Cisco Systems (NASDAQ: CSCO) missed estimates and fell more than 10% the day after the announcement. Prior to the announcement, RS indicated the stock was weak and should be avoided.
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General Electric (GE), Boeing (BA) both up
Markets were headed higher on Monday; the Dow has officially hit a record high of 16,000 while the S&P 500 surpassed the 1,800 mark. These new highs were hit as the economy has continued to improve throughout the year. Following suit with the upbeat economic news, the National Association of Home Builders announced the U.S. homebuilder confidence remained steady in November after a decline of two months in a row. The NAHB/Wells Fargo Housing Market Index reported 54 for the month of November. This followed 54 for October. Economist were expecting a slightly higher 55. Rick Judson, head of the Federal Housing Finance Agency, said, ?Given the current interest rate and pricing environment, consumers continue to show interest in purchasing new homes, but are holding back because Congress keeps pushing critical decisions on budget, tax and government spending issues down the road.? Readings that come in above 50 for the index show that builder confidence is positive and the index has sat above 50 for the past six months. David Crowe, NAHB Chief Economist, said, ?The fact that builder confidence remains above 50 is an encouraging sign, considering the unresolved debt and federal budget issues cause builders and consumers to remain on the sideline.?
While you?re here, be sure to read our latest options trading article on NYSE:TLT, MBIA, and trade ideas for readers
Shares of Boeing Company (BA) were up over 2% on Monday morning after the company received nearly $106 billion in orders at the Dubai Airshow. The company is redesigning their long-haul jet, the 777. They will be deciding on where they will be producing the new jets in the next 2-3 months. Jim McNerney, Chairman and Chief Executive, said ?We will be announcing within the next 2-3 months very specific plans for manufacturing. We have a number of alternatives and we are in the process of considering them.? The new plane will be called the 777X and is said it will be, ?the largest, most efficient twin-engine jet in the world,? the company said. The 259 orders placed and order commitments for the new jet is the largest in history for a plane of similar size.
Shares of General Electric (GE) were trading higher after the company announced their plans to spin off their North American consumer lending program through an initial public offering. They have filed necessary paperwork with the Securities and Exchange Commission to be able to begin the process in the first quarter of 2014. The finance arm of the company provides store credit cards through retailers. In the filing GE said that they will sell up to 20% of the new company through the IPO. They will then distribute the remaining stake to GE stockholders in exchange for GE common stock.
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5 Battered Investments Primed To Rebound Next Year
It?s tough to watch the market rise sharply if your portfolio has been treading water.
That?s the reality facing many investors that stepped to the sidelines earlier this year after seeing their portfolios soar in value since the bottom in March 2009.
But it could have been worse. You could have invested in some absolute duds.
Morningstar keeps track of the performance of all major exchange-traded funds (ETFs) and calculates a major loss for hundreds of these funds in 2013. The key question for investors: Which of these 2013 duds will morph into 2014 heroes? Let?s take a closer look.
Leveraged Gold? Yikes!
It hasn't paid to be bullish on gold this year, as the yellow metal lost its status as inflation hedge. But it?s proved to be downright foolhardy to buy leveraged ETFs that move at two or three times the rate of change in gold prices. These gold leveraged ETFs lost most of the money tied up in them and are clearly too risky to own.
If you are bullish on gold for 2014, you may be better served by buying gold miners or straight-up gold funds that simply move in tandem with gold prices. No need to be greedy with such a speculative and risky asset.
The Factor Shares fund has the ignominious distinction of going long gold (with leverage) and shorting the S&P 500. That was a lousy idea and should be shut down by the fund sponsor. Factor Shares, incidentally has tried this approach elsewhere, with similarly dismal results. The FactorShares 2X: Oil Bull/S&P 500 Bear (NYSE: FOL) and the FactorShares 2X: TBond Bull/S&P500 Bear (NYSE: FSA) are both down more than 60% this year.
Notice the fourth name in this group (which is not comprehensive and merely a sampling). The Global X Gold Explorers ETF (Nasdaq: GLDX) had the bad timing of owning miners in a year when mining economic turned south. But that doesn?t mean this ETF will always be a loser. This fund owns mostly Canadian miners, and in this cyclical industry, lean years are often followed by better subsequent years, as lower prices lead producer to curtail output down to the levels of demand.
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This Stock Could Make You 28% While It Saves The Planet
Having been born and raised outside of Pittsburgh, I know firsthand of the ravages of factory pollution.
My grandfather told me stories about the streetlights coming on midday because of the amount of smog in the downtown area. Many of the region's streams and rivers were void of life back in the 1960s due to industrial waste deliberately and inadvertently seeping into the waterways.
Things have improved greatly since those dark days. I have fond memories of fishing local streams for pollution-resistant fish like carp and catfish. Those same streams had been void of life just a decade or so prior.
Today, many of these Pittsburgh streams hold healthy populations of clean water fish like smallmouth bass and trout. This is a great testament to the success of the U.S. environmental movement, as well as commercial firms dedicated to pollution reduction.
Personally, I like it when the free market helps improve the environment. It's a great feeling to be able to earn a profit by doing a good thing for the environment.
The free market has spawned firms like Illinois-based Fuel-Tech (NASDAQ: FTEK), which specializes in pollution reduction technology. Not only do the company's products help mitigate the negative effects of industrial pollution, its shares are setting up to be a great buy. Let's take a closer look.
Founded in 1987, FTEK provides boiler optimization and air pollution reduction technologies to global industry and utilities. In addition, the firm's FUEL CHEM products improve the efficiency, reliability and environmental status of combustion units. It has a market cap of just under $132 million.
The company posted strong third-quarter results Monday after the close, with revenue climbing 35% year over year to $33.6 million. Operating income shot from $1.6 million in the year-ago quarter to $5.3 million this quarter, and net income advanced to $3.5 million from $1.2 million. More domestic projects and a large contract in Chile pushed revenue from the air pollution control (APC) segment higher by over 50%.
President and CEO Douglas G. Bailey stated, "Higher revenues, improved consolidated gross margins, and increased profits for the 2013 third quarter were driven by a favorable mix of domestic and international APC projects, as well as steady contributions from FUEL CHEM. We also ended the quarter in a strong financial position that included $1.05 per share in cash, and a very modest debt profile."
He continued saying, "Our business development efforts continue in earnest, and we are currently pursuing a number of large project awards in the U.S. and overseas. We continue to focus on broadening our international presence, especially in China, and addressing domestic opportunities driven largely by state consent decrees and other mandates. We also remain committed to investing in R&D and pursuing licensing opportunities as a means to enter new markets and build upon our existing competencies."
In addition to the CEO's enthusiasm for growth, the company has a backlog of $33.4 million and working capital of $46.4 million. I think this all equates to a powerful investing opportunity.
As you might imagine, the great Q3 results created a gap up on the price chart. Shares jumped from $4.60 to around $5.60 on the news. FTEK is a very low volume stock, and the gap up has my technical analyst side a little concerned. Although everything appears fundamentally solid, waiting for shares to break out above $5.81 is warranted.
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Dow breaks 16,000, S&P Breaks 1800, whatever.
No parades outside your window? How about traders on the floor of the NYSE wearing hats or blowing noisemakers? Nope.
The Dow just smashed through 16,000 today for the first time in history while the S&P 500 broke above 1800. In the meanwhile, the Nasdaq is hovering around 4000.
And nobody gives a f*ck.
Business as usual.
Here?s how I responded to all the handwringing surrounding the Dow?s break above 15,000 from May of this year ? you can substitute 16k for 15k?
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?Putting Dow 15,000 in Perspective?
Oh please, like I would ever write something like that.
If anything, too much perspective has been driving people out of their minds. Everyone has their perspective, whether you?ve asked for it or not. What you probably need is less perspective, or should I say more perspective from people whose perspective has been helpful.
Or maybe none at all for now. Let?s take a break from all the unqualified, inexperienced, triflingly myopic and hopelessly biased ?perspective? for the night.
Why does anyone need the record high close in the Dow Jones Industrial Average ?put into perspective?, anyway?
Why do we need another ?commentator? with no trading experience or skin in the game or ass on the line to tell us whether or not ?the Dow matters? or doesn?t matter?
Why do we need another ?take? on the reality before our eyes?
Why would we want to read yet another treatise about how the Dow is not reflective of the whole market?
Or how the Dow isn?t reflective of the economy?
Or how the Dow isn?t reflective of the experiences of job seekers or Boomers or MBAs or working women or Wal-Mart greeters or whatever the fuck they want to juxtapose it with to make investors feel apprehensive or guilty or both?
How many inanimate objects can we re-price the Dow in to convince others that everything still sucks?
Should we remind people how much less gold the Dow can buy them than it could have for their grandparents in the 1940
The Reformed Broker
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Housing and Bonds on the Verge of a Break (MBIA and TLT)
We start with a rundown of three trades that closed with last week?s (November) options expiry.
Here are the details -
First up is the MBIA (NYSE:MBI) strangle that we initiated back on June 24th ? a trade which, unfortunately, had very little success from the get-go.
The letter was called Taking Three Trades by the Throat and involved buying out-of-the-money PUTs and CALLs on MBI with the expectation that continuing spastic gyrations in the stock would give us profitable outcomes for both legs. As we wrote at the time ?
The stock has been volatile. And we?re presuming it will remain so, particularly if the market continues to jerk around here for a while. [MBI] could go in either direction and will most likely do both!
But we were wrong. Here?s a chart of what happened since we put on the trade ?
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This Top-Rated 'Guru' Stock Is Up 45% In 10 Weeks... And It's Still A 'Buy'
The past few years have been a great time to be an investor.
Federal Reserve Chairman Ben Bernanke's zero interest rate policy has fueled large gains in just about every market sector since 2009.
There's little question that his policies are bullish in the short term, but what happens when the Fed's easy money stops?
For an answer to this, we can take a page out of baseball history.
In 1998, Mark McGwire set a record by hitting 70 home runs during the season, while Sammy Sosa hit 66. The previous record of 61 home runs had been set in 1961 by Roger Maris. In 2001, Barry Bonds broke McGwire's record by hitting 73 home runs.
At the time, baseball was an exciting sport to watch as home run records captured headlines. Later, fans learned that the hitters were abusing steroids. Home run outputs returned to normal after league-wide steroid testing became the norm in 2003.
Fed policy is acting like a performance-enhancing drug for the market. When it stops easing, I believe the markets will be unable to continue climbing at the frantic pace seen during the past year. Returns will be below average for some time, and stock selection will again become critical.
Personally, I'm not too worried about Fed easing ending. My stock selection process does not rely on a steroid-infused market.
Instead, I use a trading system that blends fundamental and technical analysis that not only tells me what to buy, but when to buy and sell.
It's been proven to work during bull markets, bear markets, wars, market bubbles and when inflation is high or low. You see, not only have I successfully used this system for years, but I've tested my stock-picking system going back decades.
Recently, I started using it to weed through the stock holdings of the 20 most prominent investors in the world and pick the best stocks from each of their individual portfolios -- investors like Warren Buffett, Carl Icahn, Steve Cohen and David Einhorn.
This system -- which I call my "Guru Trader" system -- has two profound benefits. First, each of these "guru" investors has a team of analysts, money managers and traders to do their bidding. So when one of them picks a stock, you know it has been vetted by some of the greatest financial minds in the industry.
Second, this "Guru Trader" system has the added advantage of reducing risk. My system pinpoints stocks with strong technicals, but only signals a buy if the underlying company has strong fundamentals.
Take a look at how this system performed over the past 10 years in backtesting...
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Real yields are once again notably positive. (Climateer Investing)
Video of the day
Russ Kinnel and Christine Benz talk mutual funds with Consuelo Mack. (Wealthtrack)
Markets
For now indicators point towards more risk-on behavior. (Reading the Markets)
We are in the ?mature phase? of the bull market. (Dynamic Hedge)
Are these really reasons to be bearish? (Macro Man)
Strategy
Another reason not to buy actively managed funds. (Rick Ferri)
What happens to stocks when disaster strikes? (Crossing Wall Street)
The disappearance of the roll yield has killed the case for commodities. (SSRN via CXOAG)
Finance
More 401(k) plans are coming with advice. (Time)
Social media
Can social media firms ever monetize their users? (ValueWalk)
Is Snapchat a fad or something more permanent? (Farhad Manjoo)
Why Facebook ($FB) needs a Snapchat. (NYTimes)
Global
The implications of secular stagnation. (Gavyn Davies, FT Alphaville, Marginal Revolution, MoneyBeat)
A flaw in the UK recovery story. (Business Insider)
Economy
On the myth of the destruction of the US dollar. (Business Insider)
Q4 GDP is tracking just below 2.0%. (Capital Spectator)
Homebuilder confidence ticks down. (Calculated Risk)
Books
What went wrong: The Mortgage Wars: Inside Fannie Mae, Big-Money Politics, and the Collapse of the American Dream by Timothy Howard. (Reading the Markets)
A nice review for Walter A. Friedman?s Fortune Tellers: The Story of America?s First Economic Forecasters. (Marginal Revolution)
Earlier on Abnormal Returns
What you may have missed in our Sunday linkfest. (Abnormal Returns)
Bitcoin
Why have there been so many Bitcoin thefts? (Business Insider)
An interesting look at Bitcoin price dynamics. (FT Alphaville)
Mixed media
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Forget Amazon -- Buy This Cloud Contender Instead
It might be pie-in-the-sky thinking that Rackspace Hosting (NYSE: RAX) could overtake Amazon Web Services as king of cloud hosting -- at least not in the near future.
That?s not necessarily a bad thing for investors. While Amazon.com?s (Nasdaq: AMZN) enormous profile has cast a shadow over Rackspace for some time now, being No. 2 in this arena is nothing to sneeze at.
Back in March 2012, my StreetAuthority colleague David Sterman named RAX one of the most overvalued stocks in the market -- but these days, Rackspace is getting some rather special attention at current prices. When Dave's article was published last year, RAX sold for about $54. It subsequently grew even more expensive, to nearly $78 a share this January, but it has since fallen nearly 50% from that high.
Last Monday, RAX's share price of $49.31prompted investors to acquire 21,687 call options on the company, about 815% more than usual. That same day, Rackspace reported third-quarter earnings, showing higher than expected revenue ($389 million, up15.7% from a year ago) but lower than expected earnings per share (EPS), which came in at $0.11 compared with the $0.16 expected.
So, you had some investors selling shares -- price fell by 12% mid-day -- and others betting that the stock would go up. Here a few possible reasons for the dichotomy.
Rackspace's earnings miss was due in part to the company's bigger than expected investments on new Performance Cloud Servers, a move being applauded by its critics and one that differentiates itself from Amazon. Without getting too technical, the servers use Intel's (Nasdaq: INTC) Xeon E5 processors with 120 GB of RAM, meaning they?re faster, more reliable and less prone to failure.
According to IT research firm IDC, ?Everyone is gunning for (Amazon Web Services) right now, and performance is one area where competing public clouds feel they can differentiate from them.?
Another factor in Rackspace's miss on earnings might be the nearly 4,800 physical servers it added in the second quarter, which marked a significant increased from the previous two quarters and brought its total number to just shy of 99,000.
After being criticized for the slow pace of growth in its cloud computing business, this was welcome news for investors. The reason for all the new servers: a deployment of new cloud infrastructure in Virginia, Australia and Hong Kong that required added capacity -- which, by the way, is all due to be upgraded soon with Xeon E5 processors.
Unfortunately, Rackspace has been caught between a rock and a hard place. On one hand, as new business churns out revenue, the $5.9 billion company also requires more servers and additional capital expenditures. As a result, second-quarter investments totaled $119.8 million, compared with $188 million for the previous two quarters combined.
?We?ve increased our investment levels to play for a bigger long-term outcome," CEO Lanham Napier says. "This is how we see things right now.
We think now is the time to really go for it.?
Some analysts and the financial media think so too.
? Fortune magazine, citing Warren Buffett's famed advice ?to be fearful when others are greedy, and be greedy when others are fearful,? reported that RAX is now considered oversold according to its relative strength index reading.
? JMP Securities concluded Rackspace made a worthwhile investment in the new servers and expects the company to grow 20% in 2014 with a target price of $67.
? Oppenheimer reiterated a buy rating on RAX with a $62 price target.
On the other hand, analysts at Evercore Partners cut their number from $56 to $52.50.
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5 Bold Predictions for Online Holiday Shopping
Here?s Bob Peck of SunTrust Robinson Humphrey relaying an interesting comScore preview of this year?s online holiday shopping season?
Big picture, eCommerce is set for its first $300b+ U.S. year, growing north of 12%. Mobile commerce growth accelerated in 3Q to 26% from 24% and should be a major driver in 4Q, growing >35% according to comScore. Desktop eCommerce has been growing in the low to mid double digits, accounting for 9.4% of Commerce from 8.7% last year. Consumers continue to worry about unemployment and rising prices.
comScore has 5 bold predictions for the Holiday season:
1) Total US eCommerce is set to grow 15-17%
2) Mobile commerce will reach 12-13% of eCommerce and break $10b
3) Cyber Monday will break online spending records at $1.8b
4) Late shopping will be big, at 25% of the season?s shopping
5) Cyber week will have 5 consecutive $1b+ days
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Dave Landry's Market in a Minute - Monday, 11/18/13
Random Thoughts
Before the Saints game (who dat!?), I was able to hook up with a long lost friend. As usual, conversations quickly turn to the markets. Since he's a physician, he wanted to know how Obamacare is going to affect the markets. I told him, well, the S&P is at all-time highs, the Nasdaq is at multi-year highs, Drugs are at all-time highs, Biotech-which recently looked like it was rolling over-is coming back and not too far from all-time highs, Insurance is at all-time highs, and Health Services is at all-time highs. I reminded him that after all, I am known as the Trend Following Moron. I try not to confuse the issue with facts (
www.dontconfusetheissuewithfacts.com and
www.donotconfusetheissuewithfacts.com ).
So, how will Obamacare affect the market? So far, so good. The Market seems to like it. Obamacare appears to be good for the markets. And, as long as the market continues to bang out new highs, I'm going to continue to stick to that belief. My personal belief? Who cares. We're here to talk about trading.
People seem to be passionate about the issues. You can't let your passion get in the way of your trading. As I wrote in The Layman's Guide To Trading Stocks, "unless you're Bill Clinton, what is, is."
In addition to the aforementioned sectors at new highs, Retail, Transports, Chemicals, I can go on and on, are also at new highs.
So what do we do? Well, since things look pretty rosy, should we run out and buy, buy, buy? Well, I'm still not seeing a whole lot of new meaningful buy setups. This is perfectly normal since the methodology requires a pullback. I am still seeing a few short side setups but I see no reason to swim against the tide. Considering this, continue to focus mostly on existing positions. Take partial profits as offered and trail your stops higher. Put together your momentum list (or pay me to do it for you) and watch for new setups. Get ready to get ready.
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5 Battered ETFs Primed To Rebound Next Year
It?s tough to watch the market rise sharply if your portfolio has been treading water.
That?s the reality facing many investors that stepped to the sidelines earlier this year after seeing their portfolios soar in value since the bottom in March 2009.
But it could have been worse. You could have invested in some absolute duds.
Morningstar keeps track of the performance of all major exchange-traded funds (ETFs) and calculates a major loss for hundreds of these funds in 2013. The key question for investors: Which of these 2013 duds will morph into 2014 heroes? Let?s take a closer look.
Leveraged Gold? Yikes!
It hasn't paid to be bullish on gold this year, as the yellow metal lost its status as inflation hedge. But it?s proved to be downright foolhardy to buy leveraged ETFs that move at two or three times the rate of change in gold prices. These gold leveraged ETFs lost most of the money tied up in them and are clearly too risky to own.
If you are bullish on gold for 2014, you may be better served by buying gold miners or straight-up gold funds that simply move in tandem with gold prices. No need to be greedy with such a speculative and risky asset.
The Factor Shares fund has the ignominious distinction of going long gold (with leverage) and shorting the S&P 500. That was a lousy idea and should be shut down by the fund sponsor. Factor Shares, incidentally has tried this approach elsewhere, with similarly dismal results. The FactorShares 2X: Oil Bull/S&P 500 Bear (NYSE: FOL) and the FactorShares 2X: TBond Bull/S&P500 Bear (NYSE: FSA) are both down more than 60% this year.
Notice the fourth name in this group (which is not comprehensive and merely a sampling). The Global X Gold Explorers ETF (Nasdaq: GLDX) had the bad timing of owning miners in a year when mining economic turned south. But that doesn?t mean this ETF will always be a loser. This fund owns mostly Canadian miners, and in this cyclical industry, lean years are often followed by better subsequent years, as lower prices lead producer to curtail output down to the levels of demand.
The other gold fund that spit the bit in 2013 but could rally in 2014 if gold prices stabilize: The Market Vectors Junior Gold Miners ETF (NYSE: GDXJ), which has fallen a stunning 55% this year. According to Morningstar, the average holding in its portfolio is valued at 0.63 times book value. Assuming the companies in this fund don?t need to write down assets, value investors are likely to flock to them once they sense that gold prices have stopped falling.
Volatility Still Doesn?t Pay
One of the key hallmarks of this bull market is a complete lack of fear that the gains will be reversed. Even bearish analysts and investors don?t anticipate a major market plunge, perhaps because balance sheets are so much stronger than they were five years ago. In that light, an ETF that was positioned for a spike in the VIX -- a key gauge of market fear, popularly known as the "volatility index" -- has been a real dud.
These ETFs are the worst in the group because of how they are constructed. Their focus on short-term VIX movements has left them vulnerable to a bleeding out of value as front-month contracts get rolled over. My take: Volatility will return -- someday -- but why would you want to keep betting on this losing wager? It?s more like playing roulette than investing.
There are dozens of other ETFs that are down more than 40% this year, and they all share a common theme: a leveraged investment against the major indices and specific industries. I won?t say more about them here, except to note that the only time that you should buy a double- or triple-leveraged fund is when you have an extremely high level of conviction that your investment thesis is correct.
Searching For Bargains
Putting funds that focus on gold, volatility and/or use lots of leverage, what else is on the list of 2013 losers? After reviewing them, here are my picks for solid bounce back potential in 2014.
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Chart o? the Day: Advancing Volume Explodes
From Arthur Hill at the Stockcharts.com Blog, we get a look at a very important market internal measure called the Advance Decline Volume Line, which I believe to be a key to the continuing health of the rally. This measure is defined thusly:
The AD Volume Line is a cumulative measure of net advancing volume, which is the volume of advancing stocks less the volume of declining stocks. This indicator reflects the performance of large-caps because large-cap stocks typically trade much more volume than small and mid-caps.
Hill is looking at this AD Volume Line for the S&P 1500, which is the S&P 500 plus the Midcap 400 and the Smallcap 600, although obviously large cap volume will dominate this particular data series as the big stocks trade more shares each day. Here?s what it looks like this year:
The chart below shows the S&P 1500 AD Volume Line ($SUPUDP) also breaking out and hitting a new high. This indicator has been trending higher the entire year with a series of higher highs and higher lows. The early November low now marks first support. With the S&P 1500 and these two breadth indicators hitting new highs, the long-term uptrend is clearly intact and clearly strong.
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Low-Priced Stock Could Make You Double-Digit Profits As It Saves The Planet
Having been born and raised outside of Pittsburgh, I know firsthand of the ravages of factory pollution.
My grandfather told me stories about the streetlights coming on midday because of the amount of smog in the downtown area. Many of the region's streams and rivers were void of life back in the 1960s due to industrial waste deliberately and inadvertently seeping into the waterways.
Things have improved greatly since those dark days. I have fond memories of fishing local streams for pollution-resistant fish like carp and catfish. Those same streams had been void of life just a decade or so prior.
Today, many of these Pittsburgh streams hold healthy populations of clean water fish like smallmouth bass and trout. This is a great testament to the success of the U.S. environmental movement, as well as commercial firms dedicated to pollution reduction.
Personally, I like it when the free market helps improve the environment. It's a great feeling to be able to earn a profit by doing a good thing for the environment.
The free market has spawned firms like Illinois-based Fuel-Tech (NASDAQ: FTEK), which specializes in pollution reduction technology. Not only do the company's products help mitigate the negative effects of industrial pollution, its shares are setting up to be a great buy. Let's take a closer look.
Founded in 1987, FTEK provides boiler optimization and air pollution reduction technologies to global industry and utilities. In addition, the firm's FUEL CHEM products improve the efficiency, reliability and environmental status of combustion units. It has a market cap of just under $132 million.
The company posted strong third-quarter results Monday after the close, with revenue climbing 35% year over year to $33.6 million. Operating income shot from $1.6 million in the year-ago quarter to $5.3 million this quarter, and net income advanced to $3.5 million from $1.2 million. More domestic projects and a large contract in Chile pushed revenue from the air pollution control (APC) segment higher by over 50%.
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Hot Links: Into Overdrive
Stuff I?m Reading this Morning?
Beijing?s plans to liberalize the Chinese economy send Asian markets soaring. (Guardian)
Mark Hulbert: Five ways to know you?re in a bubble. (MarketWatch)
Farhad Manjoo: Good luck using 20-year-olds as reliable predictors of tech trends. (WSJ)
John Hussman explains how risk-managed strategies can be very wrong for a long time and still outperform over a cycle. (HussmanFunds)
What happens to stocks when disaster strikes? (CrossingWallStreet)
Shelly Adelson (Las Vegas Sands) readies for the battle of his career as internet gaming makes in-roads. (WaPo)
Buzzfeed chief Jon Steinberg:Having a Mobile Strategy is Like Having a Laptop Strategy 20 Years Ago (Medium)
Jason Zweig on floating rate funds ? they?re good except when they?re bad. (WSJ)
Expect the Bitcoin mania to go into overdrive now that US agencies are expected to be cool with it. (Bloomberg)
The Barron?s ETF Roundtable is must-read for asset allocators and advisors. (Barrons)
Superhero movies save Hollywood. (BusinessWeek)
REMINDER: Backstage Wall Street is now on Kindle!
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Mad Hedge Fund Trader Melts Up to 56.4% 2013 Performance
I sit here painfully typing this letter, as my fingertips have been worn down to bloody stumps. I have been pounding out the Trade Alerts since the month started, sending out 37, and the month is only half over. That works out to a 3.3636 Trade Alerts a day!
I have been so busy that I literally haven?t had time to eat, living entirely on black coffee, and losing three pounds since November 1. Maybe I should go into the weight loss business. I hear it?s more profitable than this financial stuff.
Not only have I worked myself to the bone, my staff is rapidly wearing out as well. Everyone is taking a well-earned rest this weekend, melting a few ice cubes along the way.
Still, you don?t get market melt ups like this very often in life. You have to strike while the iron is hot, make hay while the sun shines, and carpe diem. Usually I warn investors that if they ?invest in haste, they will repent at leisure.? In this market it?s the opposite. Invest at leisure, repent with haste.
Still, it?s all worth it when it?s working. Including both open and closed trades, the last 18 consecutive Trade Alerts have been profitable. I am rapidly closing in on an old record of 25 successful Trade Alerts, made earlier this year.
The Global Trading Dispatch service of the Mad Hedge Fund Trader is now up 56.4% in 2013. The November month to date record is now an enviable 11.92%.
The three-year return is an eye popping 111.43%, compared to a far more modest increase for the Dow Average during the same period of only 30%.
That brings my averaged annualized return up to 38.2%.
This has been the profit since my groundbreaking trade mentoring service was launched 35 months ago. These numbers place me at the absolute pinnacle of all hedge fund managers, where the year to date gains have been a far more pedestrian 3%. I predict the arrival of a lot more job seekers on Craig?s List in January.
I took profits on all of my extensive shorts in the Treasury bond market, taking advantage of the sudden back up in ten-year yields from 2.47% to 2.77%, the sharpest move of the year. I then reloaded on the first 9 basis point back up in yields.
I then bet that the stock market would continue another tedious sideways correction going into the Thanksgiving holidays. I bought an in the money put spread on the S&P 500, and then bracketed the index through buying an in the money call spread. Both of these expired profitably on Friday.
I then took advantage of the weakness to add another long in the Industrials ETF (XLI), a rifle short at one of the best performing sectors of the market. I piled on more shorts in the Japanese yen (FXY), (YCS), believing that the Bank of Japan will have to accelerate its monetary easing program to deal with an economic slowdown. I also caught the China recovery play by going long the Australian dollar (FXA).
This is how the pros do it, and you can too, if you wish.
Carving out the 2013 trades alone, 74 out of 89 have made money, a success rate of 83%. It is a track record that most big hedge funds would kill for.
My esteemed colleague, Mad Day Trader Jim Parker, has also been coining it. He caught a spike up in the volatility index (VIX) by both lapels. He also was a major player on the short side in bonds, to the delight of his many followers.
The coming winter promises to deliver a harvest of new trading opportunities. The big driver will be a global synchronized recovery that promises to drive markets into the stratosphere in 2014. The Trade Alerts should be coming hot and heavy. Please join me on the gravy train.
Global Trading Dispatch, my highly innovative and successful trade-mentoring program, earned a net return for readers of 40.17% in 2011 and 14.87% in 2012. The service includes my Trade Alert Service and my daily newsletter, the Diary of a Mad Hedge Fund Trader. You also get a real-time trading portfolio, an enormous trading idea database, and live biweekly strategy webinars. Upgrade to Mad Hedge Fund Trader PRO and you will also receive Jim Parker?s Mad Day Trader service.
To subscribe, please go to my website at
www.madhedgefundtrader.com, find the ?Global Trading Dispatch? box on the right, and click on the lime green ?SUBSCRIBE NOW? button.
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Mad Hedge Fund Trader Melts Up to 56.4% 2013 Performance
I sit here painfully typing this letter, as my fingertips have been worn down to bloody stumps. I have been pounding out the Trade Alerts since the month started, sending out 37, and the month is only half over. That works out to a 3.3636 Trade Alerts a day!
I have been so busy that I literally haven?t had time to eat, living entirely on black coffee, and losing three pounds since November 1. Maybe I should go into the weight loss business. I hear it?s more profitable than this financial stuff.
Not only have I worked myself to the bone, my staff is rapidly wearing out as well. Everyone is taking a well-earned rest this weekend, melting a few ice cubes along the way.
Still, you don?t get market melt ups like this very often in life. You have to strike while the iron is hot, make hay while the sun shines, and carpe diem. Usually I warn investors that if they ?invest in haste, they will repent at leisure.? In this market it?s the opposite. Invest at leisure, repent with haste.
Still, it?s all worth it when it?s working. Including both open and closed trades, the last 18 consecutive Trade Alerts have been profitable. I am rapidly closing in on an old record of 25 successful Trade Alerts, made earlier this year.
The Global Trading Dispatch service of the Mad Hedge Fund Trader is now up 56.4% in 2013. The November month to date record is now an enviable 11.92%.
The three-year return is an eye popping 111.43%, compared to a far more modest increase for the Dow Average during the same period of only 30%.
That brings my averaged annualized return up to 38.2%.
This has been the profit since my groundbreaking trade mentoring service was launched 35 months ago. These numbers place me at the absolute pinnacle of all hedge fund managers, where the year to date gains have been a far more pedestrian 3%. I predict the arrival of a lot more job seekers on Craig?s List in January.
I took profits on all of my extensive shorts in the Treasury bond market, taking advantage of the sudden back up in ten-year yields from 2.47% to 2.77%, the sharpest move of the year. I then reloaded on the first 9 basis point back up in yields.
I then bet that the stock market would continue another tedious sideways correction going into the Thanksgiving holidays. I bought an in the money put spread on the S&P 500, and then bracketed the index through buying an in the money call spread. Both of these expired profitably on Friday.
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November 18, 2013 ? Quote of the Day
?A high stock price is somewhat distracting,? said Tesla CEO, ElonMusk.
go to the Mad Hedge Fund Trader's website
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Jim Chanos on Taking Risks Early
I took the biggest risk of my life at age 33 and I was terrified.
With a wife and two kids, a mortgage and almost nothing in the bank, I left my management position at broker-dealer and dropped my Series 7. I essentially bolted from the business I had been in for a decade, giving up my license and my livelihood on a bet that I could be doing better for my clients as their advisor and make a lot more money once I was happy and the pit in my stomach dissolved.
Thank God it worked. I?m not sure what I would have done if it hadn?t. In hindsight, I wouldn?t change much about my timing and all of what I had gone through to get things things right in the end ? it was the real-world education of a lifetime. However, if I could change one thing, maybe it would be not waiting so long and staying with a profession that I truly hated. It probably would have been a lot less stressful had I pulled the ripcord in my twenties, before the babies and the bills.
Oh well.
Jim Chanos, one of the most successful investors of all time, began his career on The Street as a banker and then a brokerage firm analyst. The conflicts inherent in those roles drove him to seek out something more and that?s when he became a hedge fund manager. You see, Chanos was interested in the pursuit of truth and, what?s more, a way to make money from the discovery of truth before others could find it. The name of his firm, Kynikos Associates comes from the Greek word for cynic (and it can also mean ?dog-like?, another apt metaphor for a fund that relentlessly hunts down meaning in the public information that others cannot see).
Here the legendary manager offers some advice to young professionals about timing their risk-taking:
?If you ever have an idea and you think you need to take career risk to accomplish it, do it early in your career?
Life intrudes ? as when you get older you end up with more responsibilities and your ability to take risk diminishes. If you are 25 and have a great idea and you fail, no one is going to hold it against you, and future employers and investors might actually look favorably upon it.
So it you really want to pursue something, do it while you?re young ? you?ll have more energy and you?ll be able to take more financial and career risk. If it doesn?t work, you still have your whole life ahead of you.?
I would counsel the same thing. I have some close friends in their late-20′s and early-30′s on The Street who are in the process of doing exactly this. They?re going for it now before they lose the chance or life intrudes.
For more words of wisdom from Jim Chanos, I highly recommend Mamta Badkar?s round-up at the link below:
22 Brilliant Quotes From Legendary Short-Seller Jim Chanos (BusinessInsider)
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Sunday links: fee reductions as alpha
Quote of the day
Andrew Beer, ?Fee reduction is the purest form of alpha.? (All About Alpha)
Chart of the day
Market breadth is confirming new market highs. (StockCharts Blog)
Markets
Bubble talk dominated the past week. (A Dash of Insight)
Five signs of a bubble: not there yet. (Mark Hulbert)
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Stock Market Valuation is a Relative Game
The S&P 500′s valuation on current earnings is more expensive than it was last year and more expensive than it was the year before. Relative to 2012 and 2011, it is not cheap. In addition, it is also expensive relative to the earnings growth rate and to the rate of growth in the US economy overall.
But the S&P 500 is not at a bubble valuation at the current moment.
I know sometimes you wish things would be black or white, Summer Roberts or Marissa Cooper, but that sort of exactitude just isn?t how the world works.
And so the answer as to whether or not the market is cheap comes laden with asterisks and caveats and on-the-other-hands.
Here?s FactSet Research with some nuance on the current valuation puzzle:
The forward 12-month P/E ratio for the S&P 500 now stands at 15.0, based on yesterday?s closing price (1790.62) and forward 12-month EPS estimate ($119.26). This is the highest forward 12-month P/E ratio logged by the S&P 500 in more than four years (September 2009). Given the high values driving the ?P? in the P/E ratio, how does this 15.0 P/E ratio compare to historical averages? Is the index now overvalued? On the one hand, the index is now trading above both the 5-year (13.0) and 10-year (14.0) average P/E ratios. On the other hand, it is still trading below the 15-year average P/E ratio (16.2), and is not close to the peak P/E ratio of 25 recorded in the late 1990?s and early 2000?s.
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Top clicks this week on Abnormal Returns
Thanks for checking in with us this weekend. Here are the items our readers clicked most frequently on Abnormal Returns for the week ended Saturday, November 16th, 2013. The description reads as it does in the relevant linkfest:
Chilling signs of a market top. (The Reformed Broker)
Ray Dalio thinks you shouldn?t bother trying to generate alpha. (The Tell)
Ten laws of stock market bubbles. (Doug Kass)
How to teach yourself to focus. (The Kirk Report)
Are we in a bubble? (Crossing Wall Street)
Josh Brown, ?If the entities in control of trillions of dollars all want asset prices to be higher at the same time, what the hell else should you be positioning for?? (The Reformed Broker)
Guess what stock has added the most points to the S&P 500 this year? (Businessweek)
Everything you need to know about stock market crashes. (The Reformed Broker)
Jim O?Neil is swapping BRICs for MINTs. (Bloomberg)
How to survive a market crash. (Your Wealth Effect)
What else you may have missed on the blog this week:
When actively managed funds make sense. (Abnormal Returns)
Thanks for checking in with Abnormal Returns. You can follow us on StockTwits and Twitter.
The post Top clicks this week on Abnormal Returns appeared first on Abnormal Returns.
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Top clicks this week on Abnormal Returns
Thanks for checking in with us this weekend. Here are the items our readers clicked most frequently on Abnormal Returns for the week ended Saturday, November 16th, 2013. The description reads as it does in the relevant linkfest:
Chilling signs of a market top. (The Reformed Broker)
Ray Dalio thinks you shouldn?t bother trying to generate alpha. (The Tell)
Ten laws of stock market bubbles. (Doug Kass)
How to teach yourself to focus. (The Kirk Report)
Are we in a bubble? (Crossing Wall Street)
Josh Brown, ?If the entities in control of trillions of dollars all want asset prices to be higher at the same time, what the hell else should you be positioning for?? (The Reformed Broker)
Guess what stock has added the most points to the S&P 500 this year? (Businessweek)
Everything you need to know about stock market crashes. (The Reformed Broker)
Jim O?Neil is swapping BRICs for MINTs. (Bloomberg)
How to survive a market crash. (Your Wealth Effect)
What else you may have missed on the blog this week:
When actively managed funds make sense. (Abnormal Returns)
Thanks for checking in with Abnormal Returns. You can follow us on StockTwits and Twitter.
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The Inevitable Year-End Melt-Up
Is a melt-up for US stocks into the end of the year inevitable? Will benchmark-chasing by the under-invested push us into the 16,000′s on the Dow and the 1900′s on the S&P?
Even the permabears like Hussman ? while still predicting a crash eventually ? concede that a continued run-up is more likely than anything else over the next few weeks.
After six straight weeks of gains for the market, this ripping rally into New Years and possibly beyond has now become the majority view. What a long way we?ve come, from both a price and a sentiment standpoint.
Here?s the New York Times:
?I think there is a general expectation that the market is going to continue to rally for the rest of the year,? said Brad McMillan, chief investment officer for Commonwealth Financial, based in Waltham, Mass. ?Retail investors are starting to move back in, and I think that?s providing a fair amount of support.?
Toward the end of the year, fund managers who are trailing their benchmarks may help bolster stocks as they chase performance.
?I think it?s going to be a slow grind up,? said Dan Veru, chief investment officer at Palisade Capital Management, adding that the only thing ?that can derail this is some exogenous macroeconomic event that comes out of nowhere.?
The gains have been incredibly easy to come by this year and the volatility has been almost non-existent ? provided you were listening to the right people and not getting chopped up to pieces by make-believe signals and indicators. But I?m not so sure the end of the year can be quite as inevitable as the consensus now expects. It?s almost never that simple?
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The Inevitable Year-End Melt-Up
Is a melt-up for US stocks into the end of the year inevitable? Will benchmark-chasing by the under-invested push us into the 16,000′s on the Dow and the 1900′s on the S&P?
Even the permabears like Hussman ? while still predicting a crash eventually ? concede that a continued run-up is more likely than anything else over the next few weeks.
After six straight weeks of gains for the market, this ripping rally into New Years and possibly beyond has now become the majority view. What a long way we?ve come, from both a price and a sentiment standpoint.
Here?s the New York Times:
?I think there is a general expectation that the market is going to continue to rally for the rest of the year,? said Brad McMillan, chief investment officer for Commonwealth Financial, based in Waltham, Mass. ?Retail investors are starting to move back in, and I think that?s providing a fair amount of support.?
Toward the end of the year, fund managers who are trailing their benchmarks may help bolster stocks as they chase performance.
?I think it?s going to be a slow grind up,? said Dan Veru, chief investment officer at Palisade Capital Management, adding that the only thing ?that can derail this is some exogenous macroeconomic event that comes out of nowhere.?
The gains have been incredibly easy to come by this year and the volatility has been almost non-existent ? provided you were listening to the right people and not getting chopped up to pieces by make-believe signals and indicators. But I?m not so sure the end of the year can be quite as inevitable as the consensus now expects. It?s almost never that simple?
Source:
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?a form of delusion?
SnapChat is ?worth? more than $3 billion.
Okay, sure, depending on how you define the term worth.
If by worth you mean what some other person is willing to pay for it, then yes, sure. But if by worth you?re referring to the amount of value that might someday be derived from it, well then keep smoking crack. There is a finite window in which the Web 2.0 landgrab will continue, and sellers should be thinking about cashing out sooner than later at this stage in the game, now that all the big ones are public and bloated with massive cash warchests and ?currency? in the form of obscenely high share prices. This will not continue indefinitely, it never does. ?
The SnapChat kids are adorable, they probably envision a world of tomorrow in which disappearing text messages are worth trillions of dollars and change life and civilization as we know it. Or maybe they think they can break Zuckerberg?s balls for a few more months and eventually extract $5 billion from him as Facebook grows increasingly worried about ?losing the younger teens.?.
Who knows?
Fun to watch either way. Facebook can afford to pay a few billion for SnapChat and then quietly write half of it down a year from now. What it cannot afford ? at least in its own mind ? is to let Google get it.
Let the insanity begin.
From the Los Angeles Times:
Snapchat is not even 3 years old. It?s run by a couple of twentysomethings with no prior business experience. And it has never made a cent.
Yet investors are fighting for the opportunity to throw hundreds of millions at the mobile messaging service that is all the rage with teens.
The tiny Venice Beach start-up just turned down a $3-billion all-cash offer from Facebook Inc. And then, according to the Silicon Valley rumor mill, it rejected an offer from Google Inc., this one for $4 billion?
The tech industry may not be in another bubble, said Aswath Damodaran, professor of finance at the Stern School of Business at New York University, referring to the rapid rise and fall of Internet companies in the late 1990s and early 2000s. But these paper valuations are a ?form of delusion,? he said.
What is pushing up the price tags? The ability of these companies to draw a fast-growing following of young users, analysts say.
Yes, young users are the key to crazy valuations. If only said young users had a clue as to their value ? they might actually ask for a couple of dollars at some point rather than contentedly have their content and identities sheared from them like wool from a lamb.
Source:
Social media start-ups? value is enormous ? if you trust investors (LA Times)
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?a form of delusion?
SnapChat is ?worth? more than $3 billion.
Okay, sure, depending on how you define the term worth.
If by worth you mean what some other person is willing to pay for it, then yes, sure. But if by worth you?re referring to the amount of value that might someday be derived from it, well then keep smoking crack. There is a finite window in which the Web 2.0 landgrab will continue, and sellers should be thinking about cashing out sooner than later at this stage in the game, now that all the big ones are public and bloated with massive cash warchests and ?currency? in the form of obscenely high share prices. This will not continue indefinitely, it never does. ?
The SnapChat kids are adorable, they probably envision a world of tomorrow in which disappearing text messages are worth trillions of dollars and change life and civilization as we know it. Or maybe they think they can break Zuckerberg?s balls for a few more months and eventually extract $5 billion from him as Facebook grows increasingly worried about ?losing the younger teens.?.
Who knows?
Fun to watch either way. Facebook can afford to pay a few billion for SnapChat and then quietly write half of it down a year from now. What it cannot afford ? at least in its own mind ? is to let Google get it.
Let the insanity begin.
From the Los Angeles Times:
Snapchat is not even 3 years old. It?s run by a couple of twentysomethings with no prior business experience. And it has never made a cent.
Yet investors are fighting for the opportunity to throw hundreds of millions at the mobile messaging service that is all the rage with teens.
The tiny Venice Beach start-up just turned down a $3-billion all-cash offer from Facebook Inc. And then, according to the Silicon Valley rumor mill, it rejected an offer from Google Inc., this one for $4 billion?
The tech industry may not be in another bubble, said Aswath Damodaran, professor of finance at the Stern School of Business at New York University, referring to the rapid rise and fall of Internet companies in the late 1990s and early 2000s. But these paper valuations are a ?form of delusion,? he said.
What is pushing up the price tags? The ability of these companies to draw a fast-growing following of young users, analysts say.
Yes, young users are the key to crazy valuations. If only said young users had a clue as to their value ? they might actually ask for a couple of dollars at some point rather than contentedly have their content and identities sheared from them like wool from a lamb.
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Saturday links: the coming robot age The weekend is a great time to catch up on
Saturday links: the coming robot age
The weekend is a great time to catch up on some long form items that we passed up on during the week. Thanks for checking in.
Profiles
A profile of the newly resurgent Suze Orman. (The Daily Beast)
How Peter Lynch gives away his money. (NYTimes)
Lunch with Henry Blodget who is a bull on media. (FT)
Steve Ballmer on his exit from Microsoft ($MSFT). (WSJ)
Finance
Midsize endowment funds are getting more sophisticated. (Insitutional Investor)
Finance people say any number of stupid things. (Morgan Housel)
Why every asset manager needs an ETF strategy. (PWC via Focus on Funds)
Economics
Tyler Cowen on how the coming robot age could lead to a new libertarian age. (Politico Magazine)
Switzerland is taking the idea of minimum income to its logical extreme. (NYTimes contra Marginal Revolution)
The shadow banking system is evolving but not necessarily for the better. (FT Alphaville)
Startups
Why startups are attractive for techies relative to finance. (Points and Figures)
Selling solar power door-to-door works. (Reuters)
Technology
Who will be the ?Time Inc.? of the online news world? (smithy Salmon)
Amazon?s ($AMZN) greatest weapon is Jeff Bezos? paranoia. (WSJ)
An interview with Tony Fadell of Nest on the lack of innovation in the home. (Bits)
Health
You can thank the anti-vaccination crowd for the return of whooping cough. (TNR)
Anti-gluten is a full-blow fad. (Bloomberg)
Society
Why lifetime appointments to the Supreme Court no longer make sense. (Slate)
What can small post-industrial towns do to survive? (New Geography)
Food
There is a ?souvlaki renaissance sweeping Greece.? (WSJ)
The bourbon whiskey family tree. (GQ via @kottke)
Sports
Sports fans are tapped out. That is why sports leagues are looking elsewhere for dough. (Buzzfeed Business)
On the possibility of enhanced use of technology to call balls and strikes. (Grantland via MR)
Rock
How selling out saved indie rock. (Buzzfeed)
How The Beatles became the biggest band in the world. (The Daily Beast)
Books
An excerpt from Ninety Percent of Everything: Inside Shipping, the Invisible Industry That Puts Clothes on Your Back, Gas in Your Car, and Food on Your Plate, by Rose George. (The Week)
An interview with Michael Mauboussin author of The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing on complexity. (Compounding My Interests)
James Pethokoukis talks with Tyler Cowen author of Average Is Over: Powering America beyond the Age of the Great Stagnation. (AEI)
An excerpt from The Power of Glamour: Longing and the Art of Visual Persuation by Virginia Postrel. (Slate)
An excerpt fromRob Delaney?sRob Delaney: Mother. Wife. Sister. Human. Warrior. Falcon. Yardstick. Turban. Cabbage. (The Atlantic)
Earlier on Abnormal Returns
What you may have missed in our Thursday linkfest. (Abnormal Returns)
When actively managed funds make sense. (Abnormal Returns)
Mixed media
Why prostitutes are a safer bet for Justin Bieber. (The Kernel via @thestalwart)
The contemporary-art bubble is entering its final stages. (smithy Salmon)
How to waste time properly. (Nautilus)
Thanks for checking in with Abnormal Returns. You can follow us on StockTwits and Twitter.
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Saturday links: the coming robot age
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.
Profiles
A profile of the newly resurgent Suze Orman. (The Daily Beast)
How Peter Lynch gives away his money. (NYTimes)
Lunch with Henry Blodget who is a bull on media. (FT)
Steve Ballmer on his exit from Microsoft ($MSFT). (WSJ)
Finance
Midsize endowment funds are getting more sophisticated. (Insitutional Investor)
Finance people say any number of stupid things. (Morgan Housel)
Why every asset manager needs an ETF strategy. (PWC via Focus on Funds)
Economics
Tyler Cowen on how the coming robot age could lead to a new libertarian age. (Politico Magazine)
Switzerland is taking the idea of minimum income to its logical extreme. (NYTimes contra Marginal Revolution)
The shadow banking system is evolving but not necessarily for the better. (FT Alphaville)
Startups
Why startups are attractive for techies relative to finance. (Points and Figures)
Selling solar power door-to-door works. (Reuters)
Technology
Who will be the ?Time Inc.? of the online news world? (smithy Salmon)
Amazon?s ($AMZN) greatest weapon is Jeff Bezos? paranoia. (WSJ)
An interview with Tony Fadell of Nest on the lack of innovation in the home. (Bits)
Health
You can thank the anti-vaccination crowd for the return of whooping cough. (TNR)
Anti-gluten is a full-blow fad. (Bloomberg)
Society
Why lifetime appointments to the Supreme Court no longer make sense. (Slate)
What can small post-industrial towns do to survive? (New Geography)
Food
There is a ?souvlaki renaissance sweeping Greece.? (WSJ)
The bourbon whiskey family tree. (GQ via @kottke)
Sports
Sports fans are tapped out. That is why sports leagues are looking elsewhere for dough. (Buzzfeed Business)
On the possibility of enhanced use of technology to call balls and strikes. (Grantland via MR)
Rock
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Barchart.com's Chart of the Day - Noah Holdings (NOAH) for Nov 15, 2013
Today's Chart of the Day is Noah Holdings (NOAH). I found the stock by sorting the New High List and then sorted for Weighted Alpha. Since the Trend Spotter signaled another buy on 11/4 the stock gained an additional 14.05%.
It is engaged in providing independent services primarily comprising of distribution of wealth management products to the high net worth population in China. It distributes over-the-counter wealth management products originated in China which mainly includes fixed income products, private equity funds and securities investment funds. The Company also delivers to its clients a continuum of value-added services including financial planning, product analysis and recommendation, product and market updates and investor education.
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Buffet Buys Up Exxon (XOM) Stake, and more
Markets were up slightly on Friday after U.S. factory output increased in October for the third month in a row. The Federal Reserve announced that manufacturing output was up 0.3% in October, following a 0.1% increase in September. Factory output accounts as the largest factor in industrial production. Industrial production, however, fell in October which was largely attributed to the mining sector. There was a decrease of 1.6% in oil and gas drilling after six straight months of gains. The saving grace in output has been the factory sector. They have been stepping up hiring in the past three months. The increasing growth at factories is partially due to a growing demand overseas and the stronger housing market has increased demand for furniture and other wood products. Paul Dales, a senior economist at Capital Economics, said, ?As long as the overseas recovery continues and the domestic fiscal drag fades, output should continue to grow at reasonable rates.?
The United Sates Postal Service announced that they have lost a total of $5 billion over the last year. This will mark as the seventh straight yearly loss for them. The agency said that they have been trying to keep up with the decreasing amount of mail along with $5.6 billion yearly payments for health care costs for future retirees. They also said this should underscore the urgency for Congress to allow them to cease mail delivery on Saturdays and reduce payments for their retirees health benefits. There was, however, a growth in package delivery of 8%, but this is not nearly enough to offset the losses they have accrued. This year?s loss does show quite a substantial improvement over last year?s loss. This time last year the agency reported a loss of $15.9 billion. This year operating revenue came in at $66 billion, while operating expense were reported at $72.1 billion. Joseph Corbett, chief financial officer at the Postal Service, said, ?It?s the first growth in revenue since 2006.?
Berkshire Hathaway, who is owned by the famous Warren Buffett, disclosed that they have purchased a $3.45 billion stake in Exxon Mobil Corp (XOM). This attributes to a total of 40.1 million in shares of the oil company. This stake totals about 0.8% of Exxon. Despite such a seemingly small share of the company, this purchase speaks volumes. Pavel Molchanov, an energy analyst at Raymond James & Associates, said, ?When Warren Buffett gives his seal of approval to any company, that is never a bad thing.? Shares of Exxon were trading higher after the announcement. Fadel Gheit, a senior oil analyst with Oppenheimer & Co, said, ?He likes buying big, established global brand names, and Exxon is a good flight-to-quality stock. The stock has also lagged the market in the last three to five years. That makes it a typical Warren Buffet holding.?
That?s all for the day.
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Outlook 2014: Prepare For Another Year Of Subpar Growth
The Great Depression is an era few of us would choose to revisit.
Though the economy isn't especially perky these days, key measures of joblessness, poverty and hunger are nowhere near the levels seen back in the 1930s.
But by one key measure, the economy is actually in worse shape. From 1930 until 1933, the U.S. economy grew less than 3% each year. That was the longest such streak of the 20th century -- and we've already broken it in the 21st century.
We're on pace for a sixth straight year of sub-3% GDP growth, and signs are pointing continued anemic growth in the years ahead (which I'll expand upon in a moment).
Frankly, anything near 3% GDP growth would be welcome. We appear to have approached that level in the third quarter, hitting 2.8%. But almost a full percentage point of that was due to a buildup in inventories, and such gains tend to reverse in the following quarter. Translation: Get ready for 2% GDP growth -- at best -- in the fourth quarter. The recent government shutdown means we may end up closer to 1.5%.
Of course the stock market seems to be simply ignoring the economic travails. As I noted in a recent column, the Wilshire 5000 has risen 68% since the end of 2009 -- yet the economy has grown just 17%.
If you don't want to believe that the Federal Reserve's liquidity-inducing quantitative easing (QE) programs haven't been the main catalyst behind this impressive multi-year stock market rally, then you must believe that today's share prices reflect better economic days ahead. To be sure, if the economy began to grow at a 3% pace for several years, all of the market's recent gains would be justified, and stocks would likely rise much more from here.
So it's a huge question, especially in light of the fact that the Fed's QE programs are reaching the late innings.
How To Get To 3%
There are a few simple markers to assess an economy's growth potential. The first is population growth.
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Academics And Investors Can Agree On This Dividend Superstar
There's a long-standing argument between finance academics and investors.
Most academics assert that the market is efficient and there is very little edge available for traders and short-term investors. When challenged with long-term success stories of traders who consistently beat the market, the academics say those individuals are presently the statistical outliers. In other words, they are simply lucky -- just like the folks who win the lottery several times or consistently succeed at any game of "chance."
I am fortunate to be married to a woman who holds a doctorate in finance and is a great resource when it comes to programming trading strategies and understanding market microstructure.
However, we are often at odds when it comes to the viability of active trading. I love to prove her ideas wrong by showing her papers by respected academics who take my side. I am certain she gets the same vicarious thrill when my market ideas are proven inaccurate.
The one thing my wife and I agree upon is the wisdom of long-term dividend investing. (In that respect, we're also in agreement with regular readers of Amy Calistri's Daily Paycheck advisory, which emphasizes the portfolio-growing power of dividends.)
My wife recently pointed me to academic research that adds support to the no-nonsense power of dividend stocks. This research zeroes in on non-U.S.-based small- to mid-cap dividend payers -- and what it discovered is mind-blowing.
Heartland Advisors, investment advisor to the Heartland International Value Fund (Nasdaq: HINVX) in collaboration with the University of Wisconsin, will soon publish a paper asserting that international small- and mid-cap dividend-paying stocks significantly outperform their non-dividend paying counterparts.
The results of the study are nothing short of amazing. They researched the rolling average 12-month returns from 1993 to 2013 for the universe of non-U.S. stocks with market caps between $100 million and $5 billion. The average rolling 12-month return for these stocks was just over a respectable 6% -- but the highest dividend yielders returned 16.3% over the same time. It's great to see academic-led research confirming what long-term dividend investors have known for years.
International stocks may lie outside many investors' comfort zones -- but in today's global economy, the search for returns and yield often leads to foreign lands. While there are many unknowns with international stocks, that's no reason to avoid them. One key to success in the markets is to step outside your comfort zone to embrace opportunities with high potential returns, wherever they may lie.
One way to gain quick exposure to and earn high dividend-powered returns from international small-cap stocks is through the Wisdom Tree International Small Cap Dividend Fund ETF (NYSE: IDV). This exchange-traded fund is an ideal tool for gaining diversified access to the small-cap international dividend paying market. It has returned more than 20% this year and has a 12-month yield of just under 5%. (Here are the details of the ETF's holdings, sectors and countries invested.)
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Our Top Pick For The 'American Energy Boom'
It's official... the United States is about to become the largest energy producer in the world (if it's not already).
According to the Energy Information Administration (EIA), the U.S. is currently producing about 22 million equivalent barrels of oil and natural gas a day -- up from 18 million barrels in 2008. While no one knows the actual figures for Russia (the largest producer for the past several years), estimates out of Moscow are forecasting the country will produce 21.8 million barrels a day in 2013.
Think about that for a second...
Just five years ago, lofty energy prices in the U.S. nearly crippled the state of the overall economy. Back then there was so much demand for energy -- and such little supply -- that companies like Cheniere Energy (NYSE: LNG) were working day and night to build natural gas import terminals to take advantage of cheaper prices overseas.
Today, the landscape in the American energy market has completely changed. Thanks to new developments in horizontal drilling and hydraulic fracturing ("fracking"), the U.S. has unlocked waves of oil and gas reserves that were once thought unrecoverable.
As you'd expect, the optimism surrounding this "shale boom" has made American energy stocks some of the best places to put your money over the past several years.