The Reformed Broker
My friend ET sent this my way, pointing toward it as the reason European stocks are rallying in the face of yet another contractionary Flash PMI day.
Europe is awakening to the fact that Austerity does not produce growth and the time to rein in debt spending is during booms, not on the heels of a major bust when spending is needed more than ever.
I believe, as he does, that this could be a pivotal moment in the way that Europe manages its crisis...
From the Guardian:
"Socially and politically, one policy that is only seen as austerity is, of course, not sustainable," Barroso said. "We haven't done everything right … The policy has reached its limits because it has to have a minimum of political and social support."
His comments follow last week's intervention on UK economic policy by the IMF. Its chief, Christine Lagarde, said the poor performance of the UK economy left her with no alternative but to urge George Osborne to revisit his austerity policy.
Barroso's remarks were a rare admission from Brussels that its policy prescriptions, mainly crafted by eurozone governments with Berlin in the driving seat, for dealing with the crisis of the past three years had either been flawed or were running out of steam. He added that in the quest to pull the eurozone back into growth, there was no point in piling up more debt. "Growth based on debt is unsustainable, artificial. That's the biggest lesson of the crisis," he said.
Barroso's unusual critique of German-driven austerity policies, particularly in the eurozone and in bailed-out countries, came as one of the biggest players in the bond markets also called for a relaxation of Berlin-style fiscal rigour.
Bill Gross, manager of Pimco, the world's biggest bond fund, said: "The UK and almost all of Europe have erred in terms of believing that austerity, fiscal austerity in the short term, is the way to produce real growth. It is not." In an interview with the Financial Times, he added: "You've got to spend money."
Quite an about-face in rhetoric, we'll see what actually takes place.
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Is Intel "cheap"?
Sure, at ten times earnings, why not?
Only it's more like 12 times forward earnings given the drop in gross margins and operating income The Street is now expecting on the heels of last night's call.
Revenue growth is stangnant-to-collapsing too, depending on the season. There is a piddling amount of growth happening in one small area of the business, but where it counts there is only deterioration in both demand and pricing. After posting a year-over-year drop in revenue of 2.5% (and a 6.7% sequential drop from Q4), Intel is now forecasting single-digits sales growth for full-year 2013 but I'd take the under on that.
And despite this, the stock is inexplicably selling for almost 2 times sales - I can't imagine why this should be the case, I can only come up with "for old time's sake" as it's a Dow component and a former darling. There is no growth here to justify a market multiple. ( Continue… )
I had an on-air debate with CNBC's Steve Leisman the other day about why investors and traders shouldn't fuss too much over economic data (unless they're trading based on it each day).
It's a difficult concept to grasp when you're trained to look for narratives and storylines as most journalists are. Steve is a very good economic reporter and brings a wealth of information to the viewers each time he's on. I was simply trying to make the point that the Greek stock market had risen by 30% last year despite a contracting economy while in Shanghai stocks were down all year as the Chinese economy grew by 7%.
Thus, the Economy ≠ the Stock Market.
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The truth is, prior to 2007, the most successful investors completely ignored the economy except at major turning points when it became a crossover story for the news reports. Valuation and corporate profits were of more interest to the Wall Street crowd and economists were relegated to the bench. This shifted five years ago and gave rise to the Rock Star Economist archetype - someone who could explain big picture trends to the troops who had not, until that point, ever paid any serious attention. ( Continue… )
Here's what I think...
This past weekend I laid out the case for a pause in the rally that began the week of Thanksgiving.
Beneath the surface of the stock indices themselves, a narrowing of leadership began to asset itself beginning in late January. Momentum was slowing and defensive sectors began coming to the fore throughout February. All of sudden, tech dropped off the new highs radar and materials started to act like, well, like materials again. This coincided with negative divergences in both core and peripheral Europe. We got some nasty data out of Europe on the economic front and then all hell broke loose in the Italian election headlines.
Today, we're seeing a boost in the risk-on cohort, small caps, cyclicals and high beta are doing their level best to finish the month out with pizazz - all of this is textbook from a tape reading standpoint.
But! ( Continue… )
Here we go again - another positive development, another full-court press from the naysayers.
This time, we're being treated to a dissertation on why a boom in mergers and acquisitions is some kind of terrible thing that surely means the market, the economy and our lives are utterly and hopelessly fucked. Because businessmen and women have come out of the bunkers to put some cash to work, we're informed, this is most assuredly some kind of major, multi-year top and probably a massive bubble that will burst and render our grandmother's medications unaffordable, thus condemning her to death.
Take my advice, ignore this. I know these people saying these things - they are utterly unqualified and their motives are not what you think they are.
You see, sometimes when you're a blogger or a reporter at a mainstream media organization, you need to have an interesting angle - and the natural angle a know-it-all will always assume for their own is skepticism. Usually a very specific brand of skepticism that casually snarls "I've seen it all before." ( Continue… )
Was Apple's fall from grace unforeseeable?
That's become the prevailing wisdom among those covering the aftermath - but I don't think so.
Felix Salmon has a great post where he builds upon the James Stewart piece I linked to over the weekend and offers a good overview of what went wrong when 57 brokerage firm analysts rode the stock right off the cliff. He gets the story 98% right - except for this very important detail:
the clear implication here is that the analysts following Apple should have seen the fall coming. But you can’t time an individual stock like that: no one can. Especially when there was nothing — no thing — which caused the stock to fall. Apple stock was going up, and then it was going down.
Begging your pardon, Felix, but it is not true that "no one" could see the 30% sell-off coming. There is one of group of analysts that very neatly timed a sell call on Apple. The technicians. Almost all of the ones I follow. Because they know very little about Apple the company - they do not spend their days talking to Asian component suppliers or obsessing over how many inches the iPad Mini's screen is.
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Instead they study price. And price action, unlike company fundamentals, flashed a screaming sell signal way before the turn in the company's business prospects had become evident. ( Continue… )
If you've caught any of my recent appearances on TV, you may have heard me mention a fondness for energy-related equities for the first time in what feels like forever. The energy sector is one of only two overweights in the model portfolios we run, along with healthcare, for 2013.
(Before I continue, nothing you will read in this post is a recommendation for you to do anything - I don't know you or what's best for you, so please take these insights as informational only. I know it's ridiculous that I have to preface a blog post with this but we've decided in this society that adults are actually children who cannot be responsible for their own decisions. Okay, disclaimer over.)
We're playing the energy sector with a long position in Chevron (CVX) established last fall and a somewhat newer holding in the iShares DJ Oil & Gas Exploration and Production ETF, ticker (IEO).
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With Chevron, we get a well-positioned global major with $20 billion in cash and a 3% plus dividend yield. Technically, the stock is scratching and clawing at resistance around 117 with a low enough multiple that she should be able to get through eventually. ( Continue… )
Every time I write something about Warren Buffett or Berkshire Hathaway - positive or negative - at least one dude comes out of the woodwork with a snide remark or comment along the lines of "the float from Buffett's insurance business is merely leverage in disguise," implying that there's no genius involved, just a cash-flow parlor trick that's enabled him to earn excess returns.
Others will chime in to remind us that Buffett's stock picks aren't the engine driving book value at Berkshire, its his wholly-owned subsidiary businesses - in other words, he's not such an Oracle after all, just a good acquirer of companies with no need to time anything well. Still others will bring up his political influence and clout which allows him to simultaneously invest in Goldman Sachs while working on Congresspeople and Obama to back the bailout thus earning him instant profits.
And there are certainly kernels of truth in those criticisms - but admitting that does not mean agreeing that Berkshire's success has somehow been "debunked".
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It has not been debunked - if anything, his head-and-shoulders above all other investors stature has only been cemented during this last five years. He came into the crisis as sanguine as the rest of us, then gradually figured out what was going on, took his time, waited for his pitch - and then struck, just at the perfect moment at the perfect targets. Warren is now up $3 billion on his Bank of America warrants, to say nothing of the income he's earned thanks to the preferred shares that were packaged just for him. To say nothing of his loansharking masterstroke when Goldman and GE came a-calling. ( Continue… )
One of the skills I've had to acquire, as it was not natural to me, was the ability to let go of an information source once it became obvious that it was doing more harm than good.
I'm a tradition person, irrationally sentimental about objects and things, unable to throw things away without some prodding. It drives my wife crazy, who is the polar opposite. She opens birthday cards over the trash can and discards our kids' baby shoes without even glancing twice at them once they've been outgrown. Me, I save hotel room key cards.
And these same proclivities to hold onto things past the point where they're necessary have followed me onto the web (and why wouldn't they have?). And so, while going through my RSS feeds, tweet streams and email newsletter subscriptions this weekend (as I do at the end of every year), I've had to force myself to cut the weeds down a bit. Ripping this stuff out is healthy, it allows room to add new sources of information. It also de-clutters the machinery a bit, both digitally and mentally.
But more than this, it's also allowed me to face the facts that there are some writers and pundits who have just been so dead wrong - and stubbornly in denial about it - that my continued exposure to their opinions and research could only be detrimental. ( Continue… )
Before we get started with my predictions for 2013, I'd like to take a quick victory lap for the stellar predictions I made for 2012 - I somehow managed to go 3 for 3 this year! To be clear, when I do this each year, I'm trying to give you some sense of what areas of the investing world will prove popular, I'm not telling you what to buy or sell.
OK, back to my told ya so....
The return of emerging markets ex-BRIC was my top theme for 2012 - Nothing could have been more spot on as the top performing markets in the world were the non China, Brazil, India, Russia EM nations after a horrendous 2011. Non-BRICs all handily outperformed the traditional EM index (up 11%). Below you'll see their 2012 performance with their 2011 performance in red parentheses for some perspective: ( Continue… )