Saturday, July 21, 2012

SM: How the Rich Will Lose Half Their...

"Massive wealth destruction coming," warns Hong Kong economist Marc Faber, one of many "Dr. Dooms" we've featured over the years.

Faber warned in a recent interview on CNBC: The Super-Rich "may lose up to 50 percent of their total wealth."

How? "Somewhere down the line we will have a massive wealth destruction. That usually happens either through very high inflation or through social unrest or through war or credit-market collapse." And as if to punctuate his message, in Barron's recent "Midyear Roundup," Faber was asked, "Will things get worse before they get better?"

Answer: "Yes, possibly much worse," adding "most markets peaked in May 2011." He expects "further weakness in the second half of the year. Corporate profits will disappoint ... stock markets are oversold. The U.S. government-bond market is overbought. The U.S. dollar is overbought, and gold is oversold near term." Worse, he's "very negative about the outlook longer term."

In spite of his doom and gloom about America and the world economy, when pressed Faber did recommend some China REITs. And waffled a bit on America: "It is safest to buy U.S. Treasurys because the U.S. can print money" and "pay the interest. But you are earning only 1.6%, and the cost of living is increasing by about 5% a year around the world. You are getting a negative real return."

Not very promising in today's uncertain world, where the American elections are unlikely to solve the economy's core jobs problem, no matter who wins in November.

So when comes the change? "Down the line." "The breaking point could be three, four, five years away. The world is heading toward a major crisis."

OK, he hedges his bet on timing. But he's very clear on how and why: The collapse will be "caused by Federal Reserve Chairman Ben Bernanke and the Federal Reserve's continuous printing of new money." The "bailout and money printing" since the 2008 Wall Street Crash did not "create any long-lasting wealth or create healthy growth." Nor will the next president. So investors must hedge longer-term bets.

New crash coming before Bernanke leaves Fed by early 2014

The next "collapse will come on Bernanke's watch." Warning to investors: Bernanke's second four-year term as chairman of the Fed ends Jan. 31, 2014. (He will remain a board member until 2020.)

Get it? There will be another crash. The crash will ignite before 2014 when Bernanke's term ends. The crash will be worse than 2008. Bernanke will be the cause. He will be clueless about the unintended consequences of his policies (like his predecessor Alan Greenspan, who ultimately had to admit to Congress "I really didn't get it until very late.")

Bernanke's no different. When reappointed in 2010, "Black Swan" author Nicholas Taleb said Bernanke "doesn't even know that he doesn't understand how things work."

Unfortunately, since Wall Street simply went back to business as usual after the 2008 Crash, fighting all reforms, a new crash is not only easy to predict in the 2013-2014 period, we can also predict that it will be far more deadly for Wall Street banks, the American economy, taxpayers, investors, consumers and retirees.

Guess what? Many 'Dr. Dooms' predicted 2008 crash

Why so easy to predict? Because we're repeating all the same dumb and dumber mistakes we did in the year leading up to the 2008 crash. The Fed's cheap money policies have favored banks, devaluing the dollar, destroying the value of stocks, fueling inflation, triggering job losses and social unrest. In short, the happy conspiracy between the Fed and Wall Street is suicidal and will take down the rest of America with it.

Same mistakes? You bet. In mid-June 2008 just before the collapse we listed several years of warnings about a coming global economic and market crash. And they were not just a ragtag bunch of "Dr. Dooms." Read the whole list of who was predicting the meltdown of 2008, a "Who's Who" of American leaders in finance, business and government.

Here's a selection of the warnings of a crash coming, all made years before the 2008 global meltdown ... Two Fed Governors beginning in 2000 ... then in 2004, former Secretary of Commerce Pete Peterson ... hedge fund managers like Rodriguez and Soros ... in 2005, economist Nouriel Roubini and the IMF's Chief Economist, Raghuram Rajan ... also a Special Report in the Economist on the 75% appreciation in global real estate in just five years ... in 2006 Texas billionaire Rainwater warned us in Fortune; collapse warnings from Faber, from economist Gary Shilling in Forbes, also bond king Bill Gross, and Warren Buffett in Fortune ... and a Harpers special on coming collapse in real estate ... then in August 2006, the new Treasury Secretary Hank Paulson privately warned Bush's staff at Camp David ... in 2007, more warnings, from money manager Jeremy Grantham, economist Gary Shilling in his Insight Newsletter and former SEC Chairman Arthur Levitt in the Wall Street Journal ... at the same time our new Treasury Secretary was quoted in Fortune: "Strongest economy in my lifetime."

How can investors prepare for the coming crash of 2013?

So what an investor to do? Start by lowering your expectations. Then look with enormous skepticism on any returns that exceed roughly five percentage points over the inflation rate. And stop listening to happy talkers, Wall Street hustlers and cable's talking heads.

Remember, their advertisers need you to keep chasing hot stocks and the hottest sectors hyped in the press. That's a bad strategy given the big risks dead ahead.

But that's not enough. Here's your No. 1 strategy: "The critical question over the next decade isn't 'Where will my returns be highest'?" warns Faber. Instead, ask: "Where will I lose the least money?"

Get it? Invest to lose the least money. Yes, capital preservation. That's also Uncle Warren Buffett's "rule No. 1." And it should be your rule No. 1 for the rest of this decade: "Never lose money."

Stop chasing today's hottest deals, ignore this week's most-talked-about analysts recommends, your broker's sure bets, the next IPO. We know you're unhappy with "new normal" returns under 10%, but chase them and you'll lose more.

Instead, wake up and be a smart investor. Analyze every investment. Pick the ones most likely to "lose the least amount of money." We're in for some scary years ahead. And capital preservation has to be your one and only game. Deviate and you lose.

Need whole new mind-set. Why? Optimism is a portfolio killer

Many of you are contrarians, free-market individualists and macho traders who will think Faber is just another crackpot "Dr. Doom." And that all those many other warnings between 2000 and 2007 were just lucky guesses by perennial Doomsday Cassandras and Chicken Littles "crying wolf" one time too many.

Ignore warnings at your peril. Remember the catastrophic $10 trillion-plus market losses after the 2000 dot-com crash? Another multitrillion loss after the 2008 meltdown? In all, Wall Street lost an inflation-adjusted 20% of America's retirement money through that decade.

Imagine Wall Street banks in virtual bankruptcy, again, like 2008, begging Congress for yet another bailout, as America sinks into a longer double-dip recession.

Warning, next time there will be no trillion-dollar giveaways, like Paulson and Geithner did with our too-big-to-fail banks during the 2008 meltdown. We're already hearing grumblings about the J.P. Morgan Whale and the Libor scandals. More is ahead. Banks are too-big-to-manage, will fail. Expect government to extract a heavy price in the next bailout. Assuming politicians and the public are willing to add another $29.7 trillion debt.

Recently Faber warned that our brains are our worst enemies, captured in one word: overconfidence. Check out his site: Investors are "deeply asleep at the switch." Investors feed on happy talk. Investors minimize warnings, hard facts and the truth: "My experience has been that most investors (including myself) who lose money fail because of overconfidence ... convinced that an investment will be highly profitable and seldom consider that they could be wrong."

Both Wall Street and Main Street investors invariable don't wake up ... till it's too late.

Final warning: Remember Dr. Doom's Rule One: "Invest where you'll lose the least amount of money!" Why? Because "massive wealth destruction is coming." A time when "the rich may lose up to 50% of their total wealth." With Bernanke the trigger.

Buy the Commodity Dip, Or Wave Goodbye?

Global commodity markets are trading in very disjointed fashion, with huge divergence within the soft commodity markets, some precious metals easily holding higher while others are testing support, and resource commodities now starting to look overweight on speculative interest.

Unlike the regular use of commodity markets, that historically hedge forward commitments on global growth or contraction, the increase in speculative use of commodity markets to hedge dollar manipulation and regional civil unrest will now start to create volatility on an intraday basis. Tests of upside resistance are now weak and are not holding as easily as they have done previously.

Gold bullion futures trade continues its 12-session sideways crawl, that has main support at 1400 and major resistance at 1450. Trend, momentum, sentiment, and price action reads are all confirming that fair value has been found on gold, with one or two 30-minute periods of trade each day containing most of the 24-hour session moves. There are no new signals forming at this point in time, either long or short, on gold bullion.

Silver bullion trade is holding a long trend, although in recent trade the Momentum and Sentiment Indicator signals have started to show the potential for moves to test support. The 20-day simple moving average at 33.50 would seem to be a likely downside target; that, from a technical perspective, would very likely be where algorithms would step in to buy the dip. Now may not be the time to be looking to build a new long position in silver, as intra-day price action has become sporadic, and is starting to be impacted by sound-bite headlines that until recently had been ignored to the greater extent.

West Texas intermediate oil futures trade, the most liquid of global oil contracts, have held an initial test of support at 102.50, which has very bullish mid-term charts that are starting to signal that a period of consolidation will be expected, and at worst that a test of 100.00 may be coming. There are more than enough fundamental reasons for speculative traders to be on the long side of crude oil trade, but without good reason, and actually being able to continually break upside resistance that history tells us is something that could be short-lived. It looks as though dips to test support will be bought on WTI, but traders may be well advised to wait for the big dip, and at that point gauge the strength of the momentum if 101.50 as broken of support.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Apple, Samsung Put Squeeze on Other Phones, Says Deutsche

Deutsche Bank’s Brian Modoff, reflecting this morning in a note to clients on what he’s seen at the Consumer Electronics Show in Las Vegas, writes that “there is a growing disparity among vendors” of smartphones, with Apple (AAPL) and Samsung Electronics (SSNLF) breaking away from the pack.

“At the high-end, Apple and Samsung are consolidating strong positions. On the low end, vendors from China, especially Huawei and ZTE (0763HK), continue to develop at a rapid pace,” writes Modoff.

However, “This is squeezing many of the vendors in between,” he thinks, including Research in Motion (RIMM), HTC (2498TW), Motorola Mobility (MMI), LG (003550KS) and Sony’s Sony-Ericsson venture. RIM, especially, he notes “shows little progress,” adding, “we see little in this or at their booth to indicate signs of positive change.”

Modoff also opines that chip maker Qualcomm (QCOM) is in the best spot among component vendors to benefit, currently gaining share in base bands, and not doing badly in apps processors.

“Qualcomm’s integrated Snapdragon part is more than holding its own across the major smartphone platforms, including Samsung.

Modoff adds that phones using the faster 4G “Long Term Evolution,” or LTE, technology, look on pace to surpass 20 million units this year.

Toyota: A Need to Rebuild From Supply Chain Collapse

By Jack Barnes

Toyota Motor Corp. (TM), one of the largest manufacturing companies in the world, has offered strong periods of growth from which investors have profited. However, today it is a "Sell" - and is likely headed toward a long-term redevelopment of its core company structure.

Toyota was founded in 1933 and is headquartered in Toyota City, Japan. Toyota has more than 300,000 employees and a global network of production plants. The company has a market capitalization of $126 billion with an enterprise value of $238 billion, once net cash and debt are accounted for.

In 2008, it was the largest automobile manufacturer in the world, a title previously held for over 70 years by General Motors Co. (GM).

But since 2008, Toyota has been plagued by a series of events that have caused it to repeatedly halt production. These endless work stoppage issues are starting to affect the long-term viability of the internal structural management of the company's supply chain.

Toyota's supply chain is known for embracing " just-in-time" (JIT) warehousing infrastructure in its assembly lines. The JIT process helped the company save billions of dollars in capital by not having any inventory sitting around in factories or warehouses. This allowed Toyota to leverage its balance sheet by deploying its capital in production, not in warehouse inventory.

JIT manufacturing shaped Toyota's assembly plants' design, its inventory structure, and its reliance on specific subcontractors. This worked until March 11, 2011, when Japan's great quake hit.

Profit-Crushing Domino Effect

The global supply chain for auto manufacturing relied on critical parts built in factories in Japan. While the majority of these factories were not affected by the quake or tsunami directly, they have been affected by rolling black outs, or a lack of parts from vendors who provide them with sub-assemblies that are sent to the factory.

"This is the biggest impact ever in the history of the automobile industry," said Koji Endo, managing director at Advanced Research Japan in Tokyo.

Toyota isn't the only the poster child for the supply chain issue. Other competitors in the automobile industry are experiencing supply issues as well, like Nissan Motor Co. Ltd. (NSANY.PK) and its primary engine plant. In the case of Ford Motor Co. (F), it is the color of the paint sourced from Japan that's the issue.

"It's hard enough to sell a $60,000 Navigator in this economy," said Fortunes O'Neal, general manager at Park Cities Ford in Dallas. "We don't want to have to tell customers, 'You've got to pick another color.'"

Still, Toyota will feel the burden to a higher degree than its competitors will. This is because Toyota built its company around the "just-in-time" process in all aspects, leaving the company massively exposed to a major supply disruption. It not only embraced the strategy of only having the necessary parts available at the assembly line itself, it backsourced its warehouse reserve parts in the same way.

Toyota is left needing everything to arrive at the right time. The implications of this will become more noticeable in the weeks and months ahead. Toyota has to build new parts factories from scratch, while changing the basic designs of some of its cars mid-year.

In hindsight, JIT manufacturing will become known for its weakness in basic risk management. The lack of spare capacity across the production supply chain will have long-term ramifications on rebuilding the auto industry.

In the United States, where Toyota should be shifting its manufacturing focus, it is canceling all overtime and is cutting back to single shifts.

"Everyone is putting on the brakes a little bit and taking a look to see where they are affected," said Paul Newton, an analyst with IHS Automotive.

The company's stock price shows its pain.

The stock price hit a low of $67.56 on September 2, 2010, and a high of $93.68 on Feb. 16, 2011. The company stock is currently trading in the $80 per share range. If you look at the stock's recent activity in the accompanying chart, it appears to be forming a head and shoulders pattern.

It is time to sell Toyota and move that capital to the sidelines. The great period of growth for the company is over. The reality is that Toyota has grown too quickly, without the necessary spare capacity in its supply chain to weather a major event like Japan's March 11 great quake. Toyota is a liquid stock, with enough trading to allow you to leave on your terms. I would hit the sell button and look for better value stories, or even new organic growth. Toyota has a long road ahead of it, as it changes its supply chain enough to adapt to the effects of this crisis.

Disclosure: No positions

Forex: Euro At Risk Ahead Of EU Summit, Sterling To Consolidate

By David Song, Currency Analyst

Talking Points
  • Euro: German, France Push For ‘New Treaty - Italy To Vote On EUR 30B Relief Package
  • British Pound: U.K. Services Pick Up, BoE to Maintain Current Policy
  • U.S. Dollar: Weakens Across The Board, ISM Non-Manufacturing On Tap
Euro: German, France Push For‘New Treaty - Italy To Vote On EUR 30B ReliefPackage The Euro advanced to 1.3485 as German Chancellor Angela Merkel and French President Nicolas Sarkozy pushed for a ‘new treaty,’ while Italian Prime Minister Mario Monti unveiled a EUR 30B package to boost growth while cutting the budget deficit. As Italy’s government is scheduled to vote on the new measures later today, a positive outcome should help the EUR/USD to retrace the selloff from Friday, but the relief rally may be short-lived as the European Central Bank maintains a cautious outlook for the region. Indeed, the ECB is widely expected to lower the benchmark interest rate by another 25bp a head of the EU Summit, and we may see the central bank continue to move away from its nonstandard measure as its asset purchase program comes under increased scrutiny. In turn, policy makers in Europe may show an increased willingness to channel funds through the International Monetary Fund, financed by the central banks operating under the monetary union, but we may see investor confidence deteriorate further should the EU struggle to meet on common ground at the Summit scheduled for later this week. As the EUR/USD struggles to hold above the 20-Day SMA at 1.3482, we should see the downward trending channel continue to pan out in the days ahead, and the exchange rate may make another run at the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3100 should optimism surrounding the EU Summit deteriorate in the days ahead.British Pound: U.K.Services Pick Up, BoE to Maintain Current Policy The British Pound advanced to 1.5686 following the rise in market sentiment, and the sterling may continue to retrace the sharp decline from the previous month as the fundamental outlook for Britain improves. As service-based activity in the U.K. expands at a faster pace, the Bank of England may soften its dovish outlook for the region, and the central bank may preserve its wait-and-see approach in the beginning of the following year as policy makers expect to see a modest recovery in 2012. In turn, market participants may show a muted reaction to the BoE rate decision on tap for later this week, and we may see the GBP/USD consolidate over the near-term as market participants wait for the meeting minutes, which are due out on December 21. As market participants increase their appetite for risk, we may see the GBP/USD climb back above the 38.2% Fib from the 2009 low to high around 1.5680-1.5700, but the rebound could be short-lived should we see the 20-Day SMA (1.5725) hold up as resistance. U.S. Dollar: Weakens Across The Board, ISM Non-Manufacturing On TapThe greenback weakenedagainst all of its major counterparts on Monday, with the DowJones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) slipping to a low of9,854, and the rise in risk sentiment may gather pace during theNorth American trade as equity futures foreshadow a higher open forthe U.S. market. At the same time, we’re expectingservice-based activity in the world’s largest economy toexpand at a faster pace in November, and a rise in the ISMNon-Manufacturing index may dampen the appeal of the USD as marketparticipants continue to treat the reserve currency as a safehaven. As risk sentiment picks up ahead of the EU Summit, thegreenback may struggled to hold its ground over the coming days,but hopes surrounding the meeting could be short-lived shouldEuropean policy makers fail to meet eye-to-eye.--- Written by David Song, CurrencyAnalystTo contact David, e-mail Follow meon Twitter at @DavidJSongTo be added to David's e-mail distributionlist, send an e-mail with subject line "Distribution List"to EUR/USD Retrace The Advance From Earlier This Year? Joinus in the ForumRelatedArticles: Weekly Currency Trading Forecast F X Upcoming
Currency GMT EDT Release Expected Prior
USD 14:00 10:00 ISM Non-Manufacutring Composite (NOV) 53.5 52.9
USD 14:00 10:00 Factory Orders (OCT) -0.3% 0.3%
Currency GMT Release Expected Actual Comments
NZD 20:45 Value of All Buildings s.a. (3Q) -- -2.3% Falls for three straight quarters.
AUD 21:30 AiG Performance of Service Index (NOV) -- 47.7 Contracts for the eighth time this year.
AUD 22:30 TD Securities Inflation (MoM) (NOV) -- -0.1% Weakens for the second time in 2011.
AUD 22:30 TD Securities Inflation (YoY) (NOV) -- 2.1%
JPY 22:50 Loans & Discounts Corp (YoY) (OCT) -- -0.8% Declines for 24 straight months.
AUD 23:30 Company Operating Profit (QoQ) (3Q) 3.0% 4.8% Increases for the second quarter.
AUD 23:30 Inventories (3Q) 1.2% -1.1% Falls for the first time since 3Q 2010.
AUD 23:30 ANZ Job Advertisements (MoM) (NOV) -- 0.0% Fails to grow for the seventh time this year.
CNY 1:30 HSBC PMI Services (NOV) -- 52.5 Slowest pace of growth since August.
EUR 7:45 Italian PMI Services (NOV) 44.1 45.8 Contracts for the third consecutive month.
EUR 7:50 French PMI Services (NOV F) 49.3 49.6
EUR 7:55 German PMI Services (NOV F) 51.4 50.3
EUR 8:00 Euro-Zone PMI Services (NOV F) 47.8 47.5
EUR 8:00 Euro-Zone PMI Composite (NOV F) 47.2 47.0
EUR 8:30 Euro-Zone Sentix Investor Confidence (DEC) -21.0 -24.0 Lowest reading since July 2009.
GBP 8:30 Purchasing Manager Index Services (NOV) 50.5 52.1 Fastest pace of growth since September.
GBP 8:30 Official Reserves (Changes) (NOV) -- -$249M Declines for the fifth time this year.
EUR 9:00 Euro-Zone Retail Sales (MoM) (OCT) 0.1% 0.4% Increases for the seventh time in 2011.
EUR 9:00 Euro-Zone Retail Sales (YoY) (OCT) -0.8% -0.4%
DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

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A Jury of Peers for Broker Disputes

Also See
  • Who Should Regulate Investment Advisers?
  • Why Wall Street Hates the Lazy Portfolios Strategy

The scenario is not unlike those Olympic lowlights of yore: A Soviet gymnast flubs the floor exercise; a moment later, the Soviet judge scores the routine a perfect 10. Such has been the experience for many investors as they've sought compensation from their brokerage firms for everything from alleged misrepresentation to supposed breaches of fiduciary duty. For years, the rule was, investors claiming harm had to present their case to an arbitration panel that included one arbiter who worked in the very industry the panel was tasked with judging.

But thanks, in part, to sharp pressure from some investor advocates, that system has now gone the way of Olympic live-pigeon shooting. A rule change made last year by the Financial Industry Regulatory Authority now gives investors the option of bringing disputes to a three-person jury in which none of the arbiters is a brokerage-industry employee -- a move that "goes a long way toward leveling the playing field that was tilted against investors," says Ryan Bakhtiari, president of the Public Investors Arbitration Bar Association. Indeed, investors are quickly taking advantage of the option: In the time since the new rules took effect, 76 percent of all complainants have chosen to bring their cases to a wholly non-Wall Street panel. And, at least in one test of the new program, investors who selected an all-public panel fared slightly better than those who faced a jury with one industry arbitrator (though the numbers were too small to be statistically significant).

Enlarge Image

Close Illustration by Brian Stauffer for SmartMoney

Some arbitration insiders, however, say that while the playing field may be more even now, the odds are still stacked against investors. "It's putting lipstick on a pig," says Dan Solin, senior vice president at Index Fund Advisors and coauthor of a report analyzing the results of securities arbitration. For one thing, the process remains administered by Finra, the brokerage industry's self-regulator. Even with an all-public panel, critics say, investors are not exactly being judged by their peers -- while "nonindustry" arbitrators don't currently work for financial firms, many are retired lawyers and accountants recruited by Finra, says Louis Straney, a securities litigation consultant who wrote a book on the topic. And although win rates are improving, such numbers don't tell the whole story. Even if an investor wins, says Solin, the average amount recovered has historically been only about 20 percent of the original claim. "Investors are seldom made whole," adds Straney.

Finra says the recovery figure doesn't include cases that have been settled (the vast majority) and that the process, including the selection of arbitrators, is unbiased and fair. Be that as it may, advises Solin, if you do bring a dispute against your broker, be sure to hire an experienced arbitration lawyer. The new rule is "definitely a step in the right direction," he says, "but the odds still favor the house."

Bullish Investor Sentiment Declines

Last week bullish investor sentiment declined to 40% from the prior week's sentiment level of 47.44%. The decline in bullish investor sentiment nearly matched the increase in bearish sentiment. The bearish sentiment reading came in at 34.74% versus last week's 26.92%. The result of these sentiment changes is the bull/bear spread fell to 5% from last week's spread of 21%. Since the release of the sentiment data by the American Association of Individual Investors, the S&P 500 Index has declined 4.1% to 1,91.76.

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Why Dow Stocks Are Better Than Bonds

The following video is from this week's MarketFoolery podcast, in which host Chris Hill, along with Jeff Fischer, Bryan Hinmon, and Joe Magyer, discuss the latest business news. Even as bonds around the world sink to new lows, the CEO of PIMCO says there is no bond bubble. Does our panel agree? In this segment, the guys analyze the opportunity for investors and share why the 10-year Treasury bond is no match over the next decade for the likes of Dow stocks like Johnson & Johnson.

While Johnson & Johnson pays a dividend, shares aren't exactly trading at a massive discount.

For investors seeking dividend-paying stocks trading at bargain prices, check out The Motley Fool's free report "2 Dirt Cheap Stocks With HUGE Dividends." You can be among the first to get analysis of a market leader in payment systems and a high-yielding energy company by accessing this just-released report. Simply click here -- it's free.

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Friday, July 20, 2012

Asia stocks advance after Greek austerity vote

SYDNEY (MarketWatch) � Asian markets gained Monday after Greek lawmakers voted in favor of austerity measures required to secure bailout funds and avert a likely default.

Japan�s Nikkei Stock Average JP:100000018 and South Korea�s Kospi KR:SEU �each closed 0.6% higher, while Australia�s S&P/ASX 200 index AU:XJO �advanced 0.9%.

Hong Kong�s Hang Seng Index HK:HSI �rose 0.5%, while the Shanghai Composite Index CN:000001 �lagged the advance to finish flat as property stocks sold down.

Broad gains for Asia on Monday followed news that Greek lawmakers approved a package of austerity measures which international backers had demanded before signing off on 130 billion euros ($176.6 billion) worth of fresh aid.

The vote came amid violent protests in Athens against the latest round of deep spending cuts and public-sector job layoffs. Read more on the Greek austerity vote.

�Approval by the Greek parliament of fresh austerity measures overnight will be greeted with relief by markets. However, the approval did not come without major cost in the form of escalating protests and violence within Greece,� said Mitul Kotecha, strategist at Credit Agricole.

Click to Play Greek police dodge Molotovs, stones

Police dodge gasoline bombs and stones as rage over a new austerity deal exploded in Athens over the weekend. (Video: Reuters/Photo: Getty Images)

�Greek worries have not managed to damage risk appetite too much, helped by relatively positive data releases and central-bank policy actions over recent weeks. This week�s U.S. data releases will help to sustain this momentum,� Kotecha said.

Select Asian exporters with relatively large exposure to Europe did well in Monday trading.

In Tokyo, Mazda Motor Corp.JP:7261 �put on 1.4%, and Mitsubishi Motors Corp. JP:7211 �MSBHY �added 2.1%, while Esprit Holdings Ltd. HK:330 �ESHDF �climbed 4.5% in Hong Kong.

Notable movers on the Japanese bourse included Softbank Corp. JP:9984 �SFTBY , which rallied 3.5% following a Nikkei news report that the firm was likely to win new spectrum.

Tokyo-listed shares generally shrugged off data showing Japan�s economy contracted by a larger-than-expected margin in the last quarter of 2011. See report on Japanese economic data.

In Hong Kong, insurers were among the leading advancers. Ping An Insurance Group Co. HK:2318 �PNGAY �rose 2.2%, while AIA Group Ltd. HK:1299 �AAIGF �added 1.9%.

However, news that the eastern Chinese city of Wuhu reversed plans to lift home-buying restrictions in effect across much of the country hit mainland Chinese property names. See report on Wuhu�s policy rollback.

In Hong Kong, China Resources Land Ltd. HK:1109 �CRBJF �finished down 5.8%, Agile Property Holdings Ltd. HK:3383 AGPYY �plunged 6.6%, Evergrande Real Estate Group Ltd. HK:3333 �EGRNF �surrendered 6.9%, and China Overseas Land & Investment Ltd. HK:688 �CAOVF �dropped 4.8%.

In Shanghai, Gemdale Corp. CN:600383 �fell 2.9%, and Poly Real Estate Group Co. CN:600048 �lost 3.1%.

Most major exporter shares did well in Seoul, as Samsung Electronics Co. SSNGY �gained 2%, while Kia Motors Corp. KIMTF �jumped 3.6%, and LG Display Co. LPL �climbed 2.6%.

In Sydney, banks advanced with Australia & New Zealand Banking Group Ltd. AU:WBC �WEBNF �finishing 1.6% higher after the lender announced it would cut 1,000 jobs in Australia. See report on ANZ job cuts.

Elsewhere in the sector, Macquarie Group Ltd. AU:MQG �MCQEF � improved by 1.2%, while Westpac Banking Corp. AU:WBC �WEBNF �and National Australia Bank Ltd. AU:NAB � NAUBF �each rose 1.4%,

Shares in Leighton Holdings Ltd. AU:LEI �LGTHF �fell 2% after the construction firm said one of its subsidiaries was being investigated by the Australian Federal Police for a potential ethical breach.

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AAII Asset Allocation Survey: Bond Allocations at 18-Month Low

Individual investors' exposure to equities was essentially unchanged, while bond allocations fell to an 18-month low in the February AAII Asset Allocation Survey.

Stock and stock fund allocations fell 0.2 percentage points to 63.3%. This kept stock allocations within the tight range they have held since last November. The historical average is 60%.

Bond and bond fund allocations fell by 1.5 percentage points to 17.5%. This was the lowest fixed-income allocations have been since August 2009. The historical average is 15%.

Cash allocations rose 1.7 percentage points to 19.2%, a five-month high. The historical average is 25%.

The rise in cash allocations comes as optimism about the short-term outlook for stocks has declined in recent weeks and individual investors fret about the outlook for interest rates and inflation. Also playing a role is a decision by some investors to shift money out of bonds and into dividend-yielding stocks.

This month's special question asked AAII members if they have increased or decreased their exposure to international markets. The responses were split, with the largest number of respondents saying they increased their exposure. A sizeable number responded that they either kept their global allocations unchanged or reduced international exposure, however.

February Asset Allocation Survey Results:

  • Stocks and Stock Funds: 63.3%, down 0.2 percentage points
  • Bonds and Bond Funds: 17.5%, down 1.5 percentage points
  • Cash: 19.2%, up 1.7 percentage points

Asset Category Details:

  • Stocks: 27.8%, down 1.8 percentage points
  • Stock Funds: 35.5%, up 1.5 percentage points
  • Bonds: 3.2%, down 1.6 percentage points
  • Bond Funds: 14.3%, up 0.1 percentage points

Asset Category Details

  • Stocks: 29.5%, up 0.4 percentage points
  • Stock Funds: 34.0%, up 0.9 percentage points
  • Bonds: 4.8%, up 0.1 percentage points
  • Bond Funds: 14.2%, down 1.1 percentage points

> Historical Averages:

  • Stocks Total: 60%
  • Bonds Total: 15%
  • Cash: 25%

The AAII Asset Allocation Survey has been conducted monthly since November 1987 and asks AAII members what percentage of their portfolios are allocated to stocks, stock funds, bonds, bond funds and cash. The survey and its results are available online.

Airlines set on-time arrival record in 2012

The nation's largest airlines are getting passengers to their destinations at a record clip.

Thanks to good weather and fewer planes in the skies, 84.5% of the flights operated by the 15 biggest airlines arrived on time from January through April. That's the best on-time arrival rate for the first four months of any year since the government began keeping records in 1995.

They also mishandled fewer bags in April, the Transportation Department's Bureau of Transportation Statistics reported Thursday. Just 2.6 out of every 1,000 passengers complained of lost, damaged or delayed luggage, compared with 3.3 a year ago the same time. That was the lowest rate for any month since the department started collecting that information in September 1987.

Airlines are continuing a streak of fewer delays and mishandled bags. Experts have attributed that to mild weather and fewer planes clogging the airspace as carriers cut back on flights. Weather accounted for just 0.4% of late flights.

"The airlines kind of restructured pretty substantially after Sept. 11 (2001)," says Joshua Schank, president and chief executive officer of the Eno Center for Transportation, a think tank. "They parked planes in the desert. When you do that, you reduce congestion."

Cast Your Vote

Nicholas Calio, president of Airlines for America, which represents the industry, says the carriers have made a concerted effort to improve their operations.

"Thanks to operational improvements and fewer weather disruptions, our members are again delivering strong on-time performance and already this year set two all-time records for baggage handling," he says.

Industry consolidation also is helping airlines get people and bags to their destinations on time, says George Hobica, founder of, which tracks the industry. Fewer airlines translates into fewer passengers and luggage connecting from one airline to another.

Other findings:

In April, 86.3% of flights arrived within 15 minutes of their scheduled time. That's up from 82.2% in March and 75.5% from a year ago the same time.

In the first four months of the year, 1.1% of domestic flights were canceled, the lowest rate for that period in the last 18 years. In April, the carriers canceled 1% of their domestic flights, down from 2% the same time last year.

There were no instances of domestic flights sitting on the tarmac for more than three hours or international flights for more than four hours, which they are required to report.

The airlines with the most delays were American, United and ExpressJet. The carriers with the best on-time arrivals were Hawaiian, which benefits from good weather, AirTran and Delta.

In April, there were 865 consumer complaints about U.S. airlines, up from 745 in April last year.

Grocery Store Stocks Downgraded on Stiffer Competition (SWY, KR, WMT, COST, BJ)

The Kroger Co. (NYSE: KR) supermarket chain reported first quarter earnings that beat analysts’ expectations and the company was rewarded with a downgrade from Bank of America Merrill Lynch from ‘neutral’ to ‘underperform’. Grocer Safeway Inc. (NYSE: SWY) received the same ratings downgrade.

The downgrades are the result of lower food commodity prices which could mean that deflation is a threat, and intense price competition from Wal-Mart Stores Inc. (NYSE: WMT). Other low-priced stores like Costco Wholesale Inc. (NASDAQ: COST) and BJ’s Wholesale Club Inc. (NYSE: BJ) are also positioned with Wal-Mart as better able to withstand a deflationary threat due to lower cost structure and better pricing from suppliers. (Related Article: BJ’s Earnings Top Estimates on Strong Sales)

On Kroger’s conference call yesterday, the company’s CEO was asked about the effect Wal-Mart’s roll-back pricing is having on Kroger’s ability to compete. He noted that Wal-Mart’s new merchandising and marketing behavior is “a lot more consistent with traditional grocery supermarket operation than it is consistent with what Wal-Mart used to do.”

He went on to describe Wal-Mart’s roll-back pricing as based on feature items that come down in price and get a lot of publicity, while items that go up in price at the same time don’t get noticed. That sounds like the familiar loss-leader approach.

Kroger, by contrast, claims it follows a customer-first strategy and tries to deliver what it thinks its customers want. That strategy may have worked for the company in the first quarter, but the Merrill Lynch analyst notes correctly that over the longer term in this environment, it is not a winning strategy against an onslaught of low-priced competition.

On its earnings news, Kroger shares gained more than 2% yesterday, the stock’s best one-day rise in 15 months. After this mornings ratings downgrade, Kroger shares are off more than 3%.

Tell us what you think here.

Thursday, July 19, 2012

Wynn Misses Expectations; U.S. and Macau Revenue Falls

Wynn Resorts (WYNN) shares initially fell after the company released disappointing earnings results after the bell on Tuesday, but they quickly broke back into positive territory, trading up a little less than 1%. Since the start of May, shares are down about 27%.

Wynn posted $1.38 of EPS, 16 cents below expectations. Revenue of $1.25 billion fell below expectations for $1.36 billion. Revenue was down in both the U.S. and Macau. Casino revenues in Las Vegas plunged 38% on a year-over-year basis.

“Net revenues for the second quarter of 2012 were $1,253.2 million, compared to $1,367.4 million in the second quarter of 2011. The revenue decline resulted from a 7.1% decrease in revenues from our Macau Operations and an 11.6% decline in our revenues in Las Vegas, as both properties were negatively impacted by lower hold in the 2012 quarter.”

The company also offered an update on its Cotai Strip property, where it will build a new casino resort.

“On May 2, 2012, Wynn Macau�s land concession contract was published in the official gazette of Macau. This concession contract has an initial term of 25 years with the right to renew it for additional successive periods, subject to government approval. The Company anticipates constructing a full scale integrated resort containing a casino, approximately 2,000 rooms and suites, convention, retail, entertainment and food and beverage offerings on this land. The Company currently estimates the project budget to be in the range of $3.5 billion to $4.0 billion.”

You Could Capture +19.1% by Shorting This Fund

Technically, there is a strong possibility we are entering a "Stage III" topping process that would precede a bear market.

Given this outlook, I am looking to profit by searching for technically weak stocks and indexes. The Rydex S&P MidCap 400 Pure Value (NYSE: RFV) is a technically weak exchange-traded fund (ETF) that mirrors the performance of mid-cap stocks within the S&P.

RFV is comprised of 83 primarily U.S.-based holdings from diverse sectors, spanning industrials (21.2%) financials (15.2%) and consumer discretionary (15.2%).


All of these sectors have been weak. During the past month, industrials have returned -7.1%, financials -9.6% and consumer discretionary -3.3%.

The fund has a net asset value(NAV) of $30.29 a share, which means it trades below par.

As the chart shows, RFV is technically bearish and appears to be entering a Stage III top.

RFV hit a high of $34.90 in late April. At this time, the fund encountered historical resistance going back to late 2007.

Since its April high, RFV has sharply fallen. It has broken an ascending triangle formation as well as its major uptrend line, which began forming in March 2009. A minor downtrend line has also formed off the April 2010 high.

RFV has now fallen below the 10-week moving average, which is flat and currently intersects near $32. The fund is also below the 30-week moving average, which intersects at $29.65. In the past two trading weeks, the fund traded below the 30-week moving average, although it didn't close there. This past trading week (June 1st), the fund closed below the 30-week moving average.

Since the "Flash Crash" of May 6th, RFV has tested an important point of support near $28.15 on several occasions. Generally, the more times support is tested, the more likely it is to be breached. A secondary shelf of support near $26.75 could temporarily stop the fund's fall. However, if this level is broken, the next zone of support isn't until $22.50-$24.00.

The indicators are bearish. MACD is on a sell signal. The MACD histogram is climbing in negative territory. Relative Strength Index (RSI) is in a downtrend and falling. At 46.8, it is near the critical 50 level and is neither oversold nor overbought.

Stochastics gave a significant sell signal in late April. It has sharply fallen since and is approaching oversold levels.

Fundamentally, RFV is richly valued on several measures. The ETF has a trailing price-to-earnings ratio (P/E) of 15.0. RPV's current return on equity (ROE) is only 2.6%.

Plenty of Ways to Invest Like Warren Buffett

Billionaire Warren Buffett is the second richest American. As most investors know, he is the head of Berkshire Hathaway (BRK.A), the highest priced stock and one of the most successful companies during the last half-century. The company also has Class B shares (BRK.B), currently trading around 83.75, is another way to invest with Buffett. The Class B common share is equal to one-fifteen-hundredth (1/1,500) of the Class A shares. However, there are other ways to invest in Berkshire Hathaway.

The Boulder Total Return Fund (BTF) has over 27% of its portfolio in Berkshire A shares plus another 12% in Berkshire B shares, so in excess of 39% of the investment assets in Buffett's company. Other stocks the closed end fund owns includes:
Yum (YUM)
Wal-Mart (WMT)
Johnson & Johnson (JNJ)

Another alternative is by owning shares in the Sequoia Fund (SEQUX), a mutual fund with a large position in Berkshire Hathaway. Over 15% of their portfolio is invested in the stock. Some of the other stocks in their portfolio include:
Martin Marietta (MLM)
Fastenal (FAST)
Mohawk Industries (MHK)
The minimum investment in Sequoia is $5,000.

A third way to invest is by investing in the Fairholme Fund (FAIRX) which has a little over 6% of their portfolio invested in Berkshire. Although the concentration is not as significant as Sequoia, it is the number three holding in the portfolio, as measured by percentage of assets. Fairholme's other major holdings include:
Sears (SHLD)
Goldman Sachs (GS)
Citigroup (C)
WellPoint (WLP)
Minimum investment is $10,000.

Markel Corp. (MKL) is an insurance company that many consider to be a mini-Berkshire, especially since it has a substantial amount of Berkshire Hathaway stock.

There are other funds that have around two percent of their portfolio in Berkshire, such as Legg Mason ClearBridge Appreciation A (SHAPX) but the percentage isn't enough to be a close play on Berkshire.

One other option is to create a portfolio that emulates Berkshire's holdings of publicly traded stocks, however, this wouldn't cover Berkshire's holdings of non-public stocks. In addition, it would involve purchasing many different stocks, so you would be better off just buying the Class B shares. But if you think that you can out-perform Buffett using his ideas, then here is a list of a few of their Berkshire's major stock holdings:

American Express Co. (AXP)
The Coca-Cola Company (KO)
ConocoPhillips (COP)
Johnson & Johnson (JNJ)
Procter & Gamble Co. (PG)

For a free downloadable list of all of Warren Buffett's Berkshire Hathaway stockholdings, which can be changed, added to, and sorted by yield and forward P/E, go to

Disclosure: Author does not own any of the above.

Stocks surge, break 6-day losing streak

NEW YORK (CNNMoney) -- U.S. stocks rallied Friday, with the Dow and S&P 500 breaking a six-day losing streak, as JPMorgan Chase reported stronger-than-expected second-quarter earnings despite a trading loss of $5.8 billion so far this year.

Shares of JPMorgan (JPM, Fortune 500) soared almost 6%. In addition to earnings, JPMorgan also revealed that traders involved in the loss no longer work at the bank and could lose as much as two years of income.

"The news is relieving the market of some of its worst nightmares, since the loss could have been bigger and some of the actions taken by the bank are actually helping confidence," said Peter Cardillo, chief market economist at Rockwell Global Capital. "The feared disaster wasn't all that."

The Dow Jones industrial average (INDU) jumped 204 points, or 1.6%, the S&P 500 (SPX) added 22 points, or 1.7%, and the Nasdaq (COMP) climbed 42 points, or 1.5%. The day's gains were the best since June 29.

Other major U.S. banks also rose on Friday. Shares of Bank of America (BAC, Fortune 500), Morgan Stanley (MS, Fortune 500), Citigroup (C, Fortune 500) and Goldman Sachs (GS, Fortune 500) all closed between 3% and 6% higher.

Investors also reacted to comments from Federal Reserve Bank of Atlanta President Dennis Lockhart that stimulus action may be coming down the pike.

"My support for the current stance of policy rests on a forecast that sees a step-up of output and employment growth by year-end and into 2013," he said in prepared remarks to the Mississippi Economic Council. "If the economy continues on the track indicated by the most recent incoming data and information, that forecast will become untenable, as will the policy premises underlying it. This is a challenging juncture for policymaking."

Stocks also gained traction on disappointing economic numbers out of China, as investors grew hopeful that the weakness could prompt additional stimulus measures.

In the second quarter, GDP in China grew at an annual pace of 7.6%, the lowest rate in three years and a deceleration from the 8.1% growth rate it saw the previous quarter.

Fear & Greed Index

Anxiety remains about the European debt crisis. Investors are concerned that political headwinds in Europe will stymie the latest rescue plan for the euro currency union, which eurozone leaders announced at a summit meeting late last month.

On Friday, Moody's downgraded Italy's government debt two levels, citing an increased likelihood the country will be slammed by higher borrowing costs. Yields on the Italian 10-year bonds rose to 6.06%.

But analysts say that it's not all bad news for Italy, as an auction of 3-year bonds sold at an average yield of 4.65%, down from 5.3% in mid-June.

"This is positive for risk," Cardillo said. "It shows that upbeat confidence may be returning."

Related: Barclays admitted false Libor reports to Fed in '08

U.S. stocks fell Thursday as fears about a global economic slowdown and disappointing corporate results weighed on the market.

World markets: European stocks closed higher on Friday. FTSE 100 (UKX) added 1%, the DAX (DAX) in Germany gained 2.2%, and France's CAC 40 (CAC40) ticked up 1.5%.

Asian markets ended just above breakeven. The Shanghai Composite (SHCOMP) and Japan's Nikkei (N225) closed slightly higher, while the Hang Seng (HSI) in Hong Kong added about 0.4%.

Economy: The government reported producer prices in June rose by 0.1%, despite expectations that they would fall by more than half a percent.

The University of Michigan's Consumer Sentiment Index for July fell to 72, from 72.2 the prior month. The reading was below expectations.

Companies: Wells Fargo (WFC, Fortune 500) posted earnings of 82 cents on $21.4 billion in revenue, on par with expectations. On Thursday, the Department of Justice announced the bank agreed to pay $175 million to settle allegations that it discriminated against minority borrowers. Shares rose more than 3%.

Related: Buffett's prize for kids: Berkshire stock

Global banking giant HSBC (HBC) will face scrutiny on Capitol Hill on Tuesday over its allegedly lax protections against money laundering by organized criminals and terrorist groups. It's not clear if or how much HSBC may be fined over its alleged lapses, though the Financial Times speculated that the bank could be on the hook for up to $1 billion, citing analyst estimates.

Currencies and commodities: The dollar lost ground against the euro, British pound and Japanese yen.

Oil for August delivery rose $1.02 to settle at $87.10 a barrel.

Gold futures for August delivery rose $26.70 to settle at $1,592.00 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury fell slightly, pushing the yield up to 1.50% from 1.48% late Thursday.  

Baidu Off; CCTV Says It Sells Ads To Sites Offering Fake Drugs

Baidu (BIDU) shares are coming under pressure this morning after China’s CCTV reported Sunday that the company and other search engine have profited from the the promotion of 3 Web sites that sell counterfeit drugs, Reuters reports.

Two years ago, CCTV aired a similar report on Baidu selling search ads to unlicensed medical sites, triggering a more than 20% drop in the company’s shares, a hit to earnings and a public apology by the company’s CEO.

BIDU is down $3.17, or 4.1%, to $70.36.

The company s due to report financial results later today.

China Raises Rates Again; Speculation on Inflation Heightened

China signaled Tuesday that its inflation figures, due out on April 15, might be higher than expected when it raised interest rates for the fourth time since October. Benchmark one-year deposit rates, effective April 6, will increase by 25 basis points to 3.25%; one-year lending rates will also increase by 25 basis points to 6.31%, the People’s Bank of China said on its website.

Reuters reported that this is yet another indication of China’s determination to combat inflation, following as it does six increases in the required reserve ratios of banks and the previous three interest rate increases.

Xu Biao, economist with China Merchants Bank in Shenzhen, was quoted in the report saying, "The March inflation figures must be very high. It is an aggressive move, and the central bank is acting more aggressively than the market had expected. The latest interest rate rise, although at only one quarter point, may hurt investor confidence and the real economy quite significantly. More importantly, it is not the end of China's monetary policy tightening."

Economists have been expecting the April release to show that inflation rose to 5.1% in March, which would match November’s figures—a 28-month high. While so far complaints within the country about inflation have not gone beyond words, in the past inflation has led to social unrest—something the Chinese government is anxious to avoid.

Inflation is becoming a global worry, with the European Central Bank (ECB) expected to raise its own rates on Thursday for the first time since the financial crisis began. Comments from some Federal Reserve policymakers in the U.S. have led to speculation that the U.S. might be considering a move toward tightening as well.

The Real Estate Market in 2030

A number of analysts, and even some of those in the real estate industry, are finally coming around to the depressing conclusion that there will never be a recovery in residential real estate. Long time readers of this letter know too well that I have been hugely negative on the sector since late 2005, when I unloaded all of my holdings (click here for ‘The Hard Truth About Residential Real Estate’). However, I believe that ‘forever’ may be on the extreme side. Personally, I believe there will be great opportunities in real estate starting in 2030.

Let’s back up for a second and review where the great bull market of 1950-2007 came from. That’s when a mere 50 million members of the “greatest generation”, those born from 1920 to 1945, were chased by 80 million baby boomers born from 1946-1962. There was a chronic shortage of housing, with the extra 30 million never hesitating to borrow more to pay higher prices. When my parents got married in 1948, they were only able to land a dingy apartment in a crummy Los Angeles neighborhood because he was an ex-Marine. This is where our suburbs came from.

Since 2005, the tables have turned. There are now 80 million baby boomers attempting to unload dwellings on 65 million generation Xer’s who earn less than their parents, marking down prices as fast as they can. As a result, the Federal Reserve thinks that 50% of American homeowners either have negative equity, or less than 10% equity, which amounts to nearly zero after you take out sales commissions and closing costs. That comes to 70 million homes. Don’t count on selling your house to your kids, especially if they are still living rent free in the basement.

The good news is that the next bull market in housing starts in 20 years. That’s when 85 million millennials, those born from 1988 to yesterday, start competing to buy homes from only 65 million gen Xer’s. By then, house prices will be a lot cheaper than they are today in real terms. The ongoing melt down in residential real estate will probably knock another 25% off real estate prices. Think 1982 again. Fannie Mae and Freddie Mac will be long gone, meaning that the 30 year conventional mortgage will cease to exist. All future home purchases will be financed with adjustable rate mortgages, forcing homebuyers to assume interest rate risk, as they already do in most of the developed world. With the US budget deficit problems persisting beyond the horizon, the home mortgage interest deduction is an endangered species, and its demise will chop another 10% off home values.

For you millennials just graduating from college now, this is a best case scenario. It gives you 15 years to save up the substantial down payment banks will require by then. You can then swoop in to cherry pick the best neighborhoods at the bottom of a 25 year bear market. People will no doubt tell you that you are crazy, that renting is the only safe thing to do, and that home ownership is for suckers. That’s what people told me when I bought my first New York coop in 1982 at one tenth its current market price. Just remember to sell by 2060, because that’s when the next intergenerational residential real estate collapse is expected to ensue. That will leave the next, yet to be named generation, holding the bag, as your grandparents are now.

*Post courtesy of Dr. Housing Bubble.


Solyndra Successful and Innovative?

Context is key to any discussion about failed solar energy company Solyndra.

Mitt Romney's campaign was quick to slam President Barack Obama's team Wednesday for a claim that Solyndra was once considered a successful and innovative business."There was nothing 'innovative' about giving political payoffs to campaign donors. There was nothing 'successful' about 1,800 workers losing their jobs or taxpayers losing hundreds of millions of dollars," Ryan Williams, a Romney spokesman, said Wednesday in a statement.Williams was referencing the comment from an Obama spokeswoman, who told The Detroit News that Solyndra was widely praised before and after it received a $535 million loan guarantee from the Department of Energy. "In fact, both Republican and Democratic administrations advanced Solyndra's application, and the company was widely praised as successful and innovative both before and after receiving the Department of Energy loan guarantee," Lis Smith, an Obama spokeswoman told The Detroit News.Romney has used Solyndra as a key criticism of the president, and has pointed to its failure as a case of cronyism -- George Kaiser, a top Obama bundler, was a primary venture capital investor in the company. Several Capitol Hill investigations have failed to turn up any "smoking gun" of cronyism in the Solyndra loan process.References to success may be a matter of semantics when it comes to Solyndra. The solar cell manufacturer never managed to turn a profit, however, it is typical of early stage companies operating at low production levels in new technology sectors to generate negative gross margins for the first several years as production is scaled. However, the Obama spokeswoman's comment about the company's success obscures the fact that Obama's Department of Energy continued to lend to Solyndra during a period of time when it was clear the company's viability was uncertain. In fact, the primary rational for the last round of funding providing by the government to Solyndra was that if it ever came to a bankruptcy, the government would in theory be able to recoup more of its loan if Solyndra's facilities were built out to full scale, as opposed to trying to auction off a half-built, bankrupt operation. This venture capital theory -- supported by outside advisers to the Department of Energy -- has not proven to be relevant to the Solyndra bankruptcy process, which has failed to uncover any buyers willing to pay up for the company's manufacturing facilities. In addition to the government loan, Solyndra was the largest loss in the history of the venture capital industry.The now-defunct Solyndra did manufacture solar panels that were deemed an innovative product by solar installers in key markets, including Europe, using a cylindrical tube as opposed to flat solar panel design.Former President George W. Bush created the government loan program that eventually funded Solyndra. The government created the program to promote "innovative technologies."MIT Technology Review and The Wall Street Journal tagged Solyndra in 2010 as a "50 Most Innovative Companies in the World" and "Top 10 Venture-backed Clean-Tech Companies," respectively.Solyndra's major flaw -- and the blind side of the government in supporting the company -- was the failure to recognize that the solar market was moving rapidly in the direction of lowest-cost, commoditized solar panels, as opposed to higher efficiency premium panels. As Chinese low-cost solar manufacturing ramped to a scale that created overcapacity in the global solar market, premium manufacturers like Solyndra were unable to bring a compelling business case to the market. It has yet to be determined whether the Solyndra scuffle will affect the broader electorate's voting behavior in November.Additional reporting by Eric Rosenbaum Follow @JoeDeaux>To order reprints of this article, click here: Reprints

The Coming Bull Market ... In Economic Nonsense

I am not trying to be flippant, nor humorous. Indeed, we in the US will very likely see a massive escalation of propaganda, phony economic data, massaged labor statistics, and the like in 2010.

I’ve been railing against “massaged” government data for years. Whether it’s GDP numbers, housing data, unemployment claims, or retail numbers, virtually every economic metric the Government or state department publishes these days is massaged or adjusted to paint a picture that is far rosier that the real economic realities facing the US.

Let’s take US GDP Growth numbers, for instance. The most common manipulations used to overstate this number are:

  • Understating inflation
  • Overstating production of various segments of the economy
  • “After the fact” revisions lower
  • Regarding #1, virtually every one on the planet realizes that the Fed’s CPI (measure of inflation) is a joke. For those who are new to this little game, first off you need to know is that the Government has altered its measure of inflation several times in the last 100 years.

    The original measure was to simply keep track of how much it costs to buy a particular basket of goods (say meat, milk, eggs, gasoline, etc). However, the problem with using this measure is that it quickly demonstrates that the cost of living has gone up in the US dramatically as a result of US Dollar devaluation.

    Indeed, if you’re trying to pump an economy higher on credit to cover up the fact that incomes have fallen 40% or so in 30 years (while simultaneously forcing consumers into financial speculation in order to maintain the illusion of wealth), the last thing you want is for Joe America to realize “hey, wait a minute, back in the ‘60s or early ‘70s only one parent worked and people were able to get by… why are both parents now working and still in debt up to their eyeballs?”

    Consequently, the Feds changed their inflation measure to remove the costs of food and energy (after all, how many consumers actually need to buy items from those sectors?). The beauty of this is that it not only hides the fact that a gallon of milk now costs $4 or so vs. $1.15 in 1970 (and milk is definitely not three times as awesome now as then) but it also allows GDP to appear larger.

    In order to illustrate this last point, think of a company that produces staples. Let’s say that in 1970 this company produced $1 million worth of staples. Today, this company produces $5 million in staples. So the company has grown five times larger right?

    Not if inflation has risen five fold over the same time period. Instead, all you’ve done is shrink the value of the currency in which sales are denominated (in this case Dollars). Put another way, your company has not grown, it’s just that the currency it sells Staples in has lost a huge amount of value.

    However, if you claimed that inflation only rose three times as high (rather than five) then your company appears to have grown a lot more. In simple terms, by changing the measure used to account for inflation, the Feds are able to make GDP growth appear larger than it really is.

    Other GDP accounting gimmicks include overstating various economic segments. For instance, according to the latest GDP numbers, US exports of goods and services increased 17% in 3Q09 vs. 2Q09.

    Given the fact that US production facilities are only currently operating at roughly 69% (meaning nearly one full third of industrial production facilities are sitting there doing nothing) and that the US is not exactly what one would call a “production-based economy” (we haven’t been since we established the “you make cheap junk that we’ll buy with credit” deal with China in the early ‘70s), I find it very difficult to believe exports are skyrocketing in the US.

    A final GDP gimmick is to post a higher growth number that is then revised much lower in the future. This particular tactic the government doesn’t even try to hide, as evinced by the fact that 3Q09 GDP growth was first published at a 3.5% annualized rate, then revised to 2.8%, and then revised even lower to 2.2%.

    Let’s imagine you had a friend who liked to tell you outlandish stories which he then downplayed time and time again until they were plain, ordinary tales. How many times would you fall for this trick? Surely after three or four you’d figure out that this particular friend rarely tells you factually based anecdotes. Amazingly, when it comes to GDP numbers, traders don’t seem to bother.

    The above examples only pertain to GDP growth. Virtually every economic metric published these days (whether it’s retail numbers, housing numbers, unemployment claims, inflation, etc) has similarly glaring defects/ issues that cover up just how bad things have gotten in the US.

    Indeed, the worse the US economy has gotten, the poorer the economic accounting has become. Consider the following:

    • The US was only officially declared to be in a recession on December 1, 2008: right after the entire financial system nearly imploded.
    • At that time, the recession was claimed to have begun in December 2007 (so it took a full year before the Feds announced the obvious).
    • The recession was declared “over” by Ben Bernanke and pals in August 2009: a time when one in US eight mortgages were in arrears or foreclosure and one in eight US citizens were un/ underemployed or on food stamps.
    • The US stock markets are thought to be in a new bull market despite posting a 24% loss over the last decade.
    • The Financial Crisis is largely thought to be over (or at least the worst is over) despite the fact that none of the real issues plaguing the system have been fixed (not to mention the ongoing problems in the derivatives, commercial real estate, and debt markets).

    With mid-term elections coming up in 2010, I believe we are at the beginning of a real bull market in economic/ political nonsense. The massaged data, nonsensical proclamations, and other shenanigans we’ve seen over the last decade are JUST the beginning.

    After all, no one is going to run on a “we’re in a Depression, not just a Recession, and we’ve spent several trillions of dollars without fixing anything just so Wall Street can get record bonuses again” platform.

    Instead, we’re going to see economic data become even more divorced from reality, assertions that the economy is back on track, and that at worst there is the specter of a “double-dip” recession looming. Heck, even these fears are sugar-coated… literally (making an economic nightmare sound like an ice-cream sundae is a genius marketing move).

    So, I for one, am mega-bullish on economic/ political nonsense for 2010. Put another way, I believe that the worse things get, the better they will sound coming from our nation’s leaders/ pundits.

    After all, with a Nobel Peace Prize winner upping troop numbers in a never-ending war, an economist who failed to see two bubbles until after the destroyed more than $11 trillion in wealth winning Time’s Man of the Year, and a CEO who somehow managed to convinced the government to give his firm $13 billion in bailout funds despite allegedly having hedged all its exposure on the very investment that it claimed it needed bailouts for named Person of the Year by The Financial Times, why couldn’t you spin record food stamp usage as a “consumption miracle” or one in eight mortgages being in foreclosure as “careful inventory accumulation” or a Depression as a “jobless recovery”?

    Cheniere Energy Shares Jumped: What You Need to Know

    Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

    What: Shares of Cheniere Energy (AMEX: LNG  ) are up 10% today after the company's credit was upgraded.

    So what: Standard & Poor's upgraded Cheniere Energy's credit from CCC+ to B- after the company was able to raise capital and improve its capital structure. The company's Sabine Pass Liquefaction subsidiary also had its rating increased to BB-.

    Now what: Credit rating agencies are judging the risk of a company defaulting on its debt, essentially judging the downside risk for equity investors. So it's a good thing for the stock, but it doesn't mean questions about the company have been answered. In the report, S&P pointed out that the company will likely report negative cash flow for the next four years, and that it will have to execute on its export facility over the next few years, as well as access the capital markets again, possibly diluting shareholders.

    Interested in more info on Cheniere Energy? Add it to your watchlist by clicking here.

    Wednesday, July 18, 2012

    TIVO Slips: FYQ1 Misses, Q2 View Weak

    Shares of TiVo (TIVO) are down 21 cents, or 2%, at $8.75 in late trading after the company this afternoon reported fiscal Q1 revenue below analysts’ expectations, and a deeper-than-expected net loss.

    Revenue in the three months ended in April rose 40%, year over year, to $54.5 million, yielding a net loss of 17 cents a share.

    Analysts had been modeling $55.3 million and a 15-cent net loss.

    The company saw total subscriber count rise by 27%, year over year, to end the quarter with 2.5 million.

    CEO Tom Rogers called the quarter’s results “a solid start to the year” and said TiVo was continuing to “execute on our key objectives.” Rogers said the company’s increase in subscribers was a result of the fact that “cable operators are demanding a product that can tame an increasingly chaotic array of content choices.”

    For the current quarter, the company expects a net loss of $28 million to $30 million on revenue of $53 million to $55 million. Analysts have been modeling $56.2 million and a net loss of $27 million, on an adjusted basis.

    TiVo’s conference call with analysts is currently ongoing, having begun at 5 pm, Eastern time. You can catch the rest of the webcast here.

    More to this Media Company than Meets the Eye

    Back in 1973, Warren Buffett began accumulating shares in The Washington Post Co. (NYSE: WPO), which at the time consisted of the prestigious namesake newspaper publication as well as a number of television broadcasting and cable television systems. More than three and a half decades later, and some things never change -- just this week the newspaper won four Pulitzer Prizes. And while many of these assets remain, the Post faces a new landscape: a declining print business in the face of new media, namely the Internet. That might be enough to make investors head for the exits (if they already haven't), but another segment of the company is actually thriving -- so much so that it has grown to become the largest division and main driver of improving the company's fortunes.


    The Kaplan education segment represented nearly 58% of last year's total sales of $4.6 billion and, for all practical purposes, all of total company operating profits of $194 million. The other segments combined to break even. Broken down a bit further, the cable television and television broadcast units offset the losses in publishing, with the newspaper business posting an operating loss of $164 million to make the $29 million loss in magazines seem trivial.

    Kaplan specializes in providing online classes and more traditional classroom settings through its 74 physical campuses in 19 states. Degrees span from professional certifications, including nursing and criminal justice to master’s degree programs in business and teaching education. Kaplan also offers test preparation services and operates in parts of Europe and the Asian Pacific.

    Kaplan has proven extremely profitable for The Washington Post Co. and is also rapidly growing. Growth is stemming from organic means as the for-profit education industry takes market share from more traditional non-profit universities and also from acquisitions. Kaplan grew +13% last year and boasted an operating margin of 12%.

    Cable television is the next largest contributor to sales at 16% and experienced negligible year-over-year sales and profit growth last year. Both publishing units and television broadcasting saw double-digit declines in sales, with the Post posting a marked -23% decline in print advertising and Newsweek seeing a -37% plummet in ad revenue.

    A recession courtesy of a global credit crisis is the primary reason for the dismal near-term advertising trends, but weakness in everything except education and cable can also be attributed to a secular decline as advertising shifts to newer media, especially the Internet.

    On a more positive note, Kaplan has seen its share of total revenue rise from 34% back in 2005. Additionally, total company operating cash flow continues to improve as capital is siphoned from the shrinking divisions into education.

    Washington Post's stock price has recently run up with the overall market and a favorable mention in investment publication Barron's, but it still trades at a very reasonable multiple of just 12 times free cash flow. This is well below the market's multiple of 22 and is the lowest Washington Post has traded in more than a decade. Also, return on invested capital was nearly 14% last year, more than double the market average.

    It's difficult to see the stock trading in excess of 20 times free cash flow as it has in the past, but there is considerable upside given the healthy outlook of for-profit educators. The other wild card is a recovery in advertising, which typically occurs in the later stages of an economic recovery -- but it will happen at some point nonetheless.