Obamacare was crafted in the back rooms of Congress. Congressional staffers and industry lobbyists scribbled away, writing the massive law deep into the night, night after night. Everyone wanted to make sure they got what they wanted. The insurance industry and Big Pharma made sure they got new mandates forcing Americans to buy their products. The politicians got lots and lots of new taxes wedged skillfully into the nooks and crannies of the bill.
I thought that families that made under $250k/year weren’t going to see their tax bills rise. I am pretty sure that’s what the president said.
But I suppose we’ve learned by now that what this president says, and what he does are 2 different things.
For more visit Against Crony Capitalism
John Hussman's last three weekly emails have been outstanding. Let's take a look at a couple short snips from the first two articles and then a longer snip from his letter to the Fed.
Textbook Pre-Crash Bubble
November 11: Textbook Pre-Crash Bubble by John Hussman
Hussman: "The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak."
This is exactly how I have felt for two years running. It reminds me of 1999-2000 when tech stocks put on that last big rally. Avoiding a bubble is incredibly hard to do, and this one has been exceptional.
Here is a chart from the article with Hussman's comments.
Though I don’t believe that markets follow math, it’s striking how closely market action in recent years has followed a “log-periodic bubble” as described by Didier Sornette (see Increasingly Immediate Impulses to Buy the Dip).
A log periodic pattern is essentially one where troughs occur at increasingly frequent and increasingly shallow intervals. Frankly, I thought that this pattern was nearly exhausted in April or May of this year. But here we are. What’s important here is that the only way to extend that finite-time singularity is for the advance to become even more vertical and for periodic fluctuations to become even more closely spaced. That’s exactly what has happened, and the fidelity to the log-periodic pattern is almost creepy. At this point, the only way to extend the singularity beyond the present date is to envision a nearly vertical pre-crash blowoff.
At this horizon, even “buy-and-hold” strategies in stocks are inappropriate except for a small fraction of assets. In general, the appropriate rule for setting investment exposure for passive investors is to align the duration of the asset portfolio with the duration of expected liabilities. At a 2% dividend yield on the S&P 500, equities are effectively instruments with 50-year duration. That means that even stock holdings amounting to 10% of assets exhaust a 5-year duration. For most investors, a material exposure to equities requires a very long investment horizon and a wholly passive view about market prospects.
Hugh Hendry Throws In Towel
On November 22, InvestmentWeek reported long-time bear Hugh Hendry threw in the towel. 'I can't look at myself in the mirror': Hendry reveals why he has turned bullish
Speaking at Harrington Cooper's 2013 conference, Hendry said he is no longer fighting the "two-way feedback loop" which is continuing to boost risk assets.
"I can no longer say I am bearish. When markets become parabolic, the people who exist within them are trend followers, because the guys who are qualitative have got taken out. I have been prepared to underperform for the fun of being proved right when markets crash. But that could be in three-and-a-half-years' time."
"I cannot look at myself in the mirror; everything I have believed in I have had to reject. This environment only makes sense through the prism of trends."
Trend Is Your Friend Until It Changes
Hendry is now looking for ‘auto-correlations' that benefit from this feedback loop. "You have got to be in things that are trending," says Hendry.
The market has been trending ever since March 2009. There were a few pullbacks along the way, but every one was bought with vigor. Does that mean the next one will be bought?
Hardly. And why should it?
My friend Pater Tenebrarum at the Acting Man blog commented via email ...
"Hendry's change in stance is akin to Druckenmiller covering all his shorts in Internet stocks in November of 1999 and going long tech. The internet stock shorts he covered topped out two weeks later (they topped well before the Nasdaq did), the Nasdaq's final high came in early March, about 3 months later. Thereafter, an 85% decline in the index - and 3/4 of the internet stocks in which Druckenmiller covered shorts eventually went to ZERO, while the remainder fell between 90% to 99%."
Hendry is aware, but unconcerned about that possibility.
Said Hendry ... "I may be providing a public utility here, as the last bear to capitulate. You are well within your rights to say ‘sell'. The S&P 500 is up 30% over the past year: I wish I had thought this last year. Crashing is the least of my concerns. I can deal with that, but I cannot risk my reputation because we are in this virtuous loop where the market is trending."
Wow. Given valuations, crashing should be everyone's big concern. But if it was, prices would not have gotten this ridiculous in the first place.
Reflections on Not Chasing Bubbles
November 18: Chumps, Champs, and Bamboo by John Hussman
“The seed of a bamboo tree is planted, fertilized and watered. Nothing happens for the first year. There´s no sign of growth. Not even a hint. The same thing happens – or doesn´t happen – the second year. And then the third year. The tree is carefully watered and fertilized each year, but nothing shows. No growth. No anything. Then the bamboo tree suddenly sprouts and grows thirty feet in three months.” ? Zig Ziglar
This story is more than a quote about persistence – it’s actually a reasonable description of risk-managed investing.
At bull market peaks, it often seems that the market is simply headed higher with no end in sight, and “buy-and-hold” appears superior to every alternative. Meanwhile, the reputation of value-conscious investors and risk-managers goes from “champ” to “chump.” Then, the bamboo tree suddenly sprouts, and the entire lag is often replaced by outperformance in less than a year. Only after the fact does the reputation of risk-managed strategies surge from “chump” to “champ.” By then, it’s unfortunately too late to be of help to many investors who capitulated in frustration at the peak.
As Jeremy Grantham at GMO has observed, “we often arrive at the winning post with good long-term results and less absolute volatility than most, but not necessarily with the same clients that we started out with.”
Hussman's Open Letter to the Fed
November 25: An Open Letter to the FOMC: Recognizing the Valuation Bubble In Equities by John Hussman
The chart below is from one of the best tools that the Fed offers the public, the Federal Reserve Economic Database (FRED). The chart shows the ratio of corporate profits to GDP, which is presently at a record. The fact that profits as a share of GDP are more than 70% above their historical norm should immediately raise a question as to whether current year earnings or next year’s projected “forward earnings” should be used as a sufficient statistic for long-term cash flows and equity market valuation without any further reflection. Then again, more work is required to demonstrate that such an approach would be misleading. We’re just getting warmed up.
A simple way to see the implications of the present elevation of the profit share is to relate the level of profit margins to subsequent growth in profits over a reasonably “cyclical” horizon of several years. Remember, when one values equities, one is valuing a long-term stream, not just next year’s earnings. Investors taking current-year or forward-year profits as a sufficient statistic should be aware that high margins are reliably associated with weak profit growth over subsequent years.
The next relevant question is to ask why profit margins are presently so high. One might argue that the profitability of companies has achieved a permanently high plateau. Despite historical mean-reversion in profit margins (which tend to collapse over the full course of the business cycle), maybe this time is different. As it happens, we can relate the surfeit of corporate profits in recent years rather precisely to the extraordinary combined deficits of the household and government sectors during the same period. ....
Corporate profits as a share of GDP are nearly the mirror image of deficits in the household and government sectors. A simple way to think about this is that dissaving in both sectors helps to support corporate revenues and limit the need for competition, even when wages and salaries are depressed. It follows that most of the variability in corporate profits over time is driven by mirror image variations in the household and government sectors. ....
The fact is that valuation measures driven by single-period earnings (whether trailing earnings or forward operating earnings) are poorly correlated with subsequent market returns, mainly because they impose the counterfactual assumption that profit margins can be held constant over time.
Though Fed officials including Alan Greenspan and Janet Yellen seem attracted to the seemingly elegant simplicity of these “equity risk premium” models, they seem somehow oblivious to the fact that they don’t actually work.
Why is the historical record of these simple “equity risk premium” estimates such a cacophony of noise? The answer should be immediately apparent. It turns out that the error between these estimates and actual subsequent 10-year S&P 500 total returns (in excess of 10-year Treasury yields) has a correlation of 0.86 with – you guessed it – profit margins. With profit margins at the highest level in history, the record suggests that these models are grossly overestimating prospective equity returns at today's all-time stock market highs. Unfortunately, this evidence also suggests that the faith expressed in these “equity risk premium” estimates by Janet Yellen and others is likely to coincide with their most epic failure in history.
My strong disagreement should not be confused with disrespect, and none is intended, but wasn't it Janet Yellen who in October 2005, at the height of the housing bubble, delivered a speech effectively proposing that monetary policy could mitigate any negative economic consequences of a housing collapse, and arguing that the Fed had no role in preventing further housing distortions? Given the lack of concern with the present elevation of the equity markets, these remarks from 2005 have a rather ominous ring in hindsight:
“First, if the bubble were to deflate on its own, would the effect on the economy be exceedingly large? Second, is it unlikely that the Fed could mitigate the consequences? Third, is monetary policy the best tool to use to deflate a house-price bubble? My answers to these questions in the shortest possible form are, ‘no,’ ‘no,’ and ‘no.’”
The reason that the Fed does not see an “obvious” stock market bubble (to use a word regularly used by Governor Bullard, as if to imply that misvaluations cannot exist unless they smack their observers with a two-by-four) is because while price/earnings multiples appear only moderately elevated, those multiples themselves reflect earnings that embed record profit margins that stand about 70% above their historical norms.
We can demonstrate in a century of evidence that a) profit margins are mean-reverting and inversely related to subsequent earnings growth, b) margin fluctuations are largely driven by cyclical variations in the combined savings of households and government, and importantly, c) valuation measures that normalize or otherwise dampen cyclical variation in profit margins are dramatically better correlated with actual subsequent outcomes in the equity markets.
If one examines the stocks in the S&P 500 individually, the median price/revenue multiple is actually higher today than it was in 2000 (smaller stocks were more reasonably valued in 2000, compared with the present). This is a dangerous situation. In this context, the dismissive view of FOMC officials regarding equity overvaluation appears misplaced, and seems likely to be followed by disruptive financial adjustments.
One obtains a similar view, with equal historical reliability, from the ratio of nonfinancial equity capitalization to nominal GDP, using Federal Reserve Z.1 Flow of Funds data. On this measure, equities are already beyond their 2007 peak valuations, and are approaching the 2000 extreme. The associated 10-year expected nominal total return for the S&P 500 is negative.
Hussman concludes with a discussion on Fed policy ...
The policy of quantitative easing has run its course. It undermines planning, as every economic decision must be made in the context of what the Federal Reserve may or may not do next. It starves risk-averse savers, the elderly, and the disabled from interest income. It lowers the bar for speculative, unproductive, low-covenant lending (as it did during the housing bubble). It relaxes a constraint that is not binding – as there are already trillions of dollars in idle reserves at U.S. banks, on which the Federal Reserve pays interest both to keep them idle and to avoid disruptions in short-term money markets. It undermines price signals and misallocates scarce savings to speculative pursuits. It further skews the distribution of wealth, and while the extent of this skew has a scarce chance of persisting, the benefits of any spending from transiently elevated stock market wealth will accrue to primarily to higher-income individuals who are not as constrained as the millions of lower-income, low-asset families hoping for some “trickle-down” effect. We have seen numerous variants of this movie before, and we should have learned the ending by now.
Importantly, the magnitude of the “wealth effect” on employment is dismally small. Even if the entire relationship between stock market fluctuations and employment fluctuations was causal and one-directional, it would still take a roughly 40% advance in the stock market to draw the unemployment rate down by 1%. Unfortunately, price advances do not create the underlying cash flows to support them, so the strategy of manipulating stock prices higher also involves a piper that must be paid.
The intent of this letter is not to criticize, but hopefully to increase the mindfulness of the FOMC as to historical evidence, the strength of various financial and economic relationships, and the potentially grave consequences of further relaxing constraints that are not binding in the first place.
Integrity vs. Respect
In the opening paragraph, Hussman, stated (to the Fed) "I don’t question your motives or integrity."
I side solidly with Hussmanon this point although many believe this is all part of some "grand plan" for the Fed or big banks to take over the world.
Yet, I cannot offer Hussman's same sense of "no disrespect".
We are in this mess, precisely because the Fed blows bubbles of increasing magnitude over time. It happens time and time again, and every time banks are bailed out at the expense of the poor and middle class.
The Fed deserves no respect for what they have done and the problems they have caused. They deserve no respect for missing the dotcom bubble, for missing the housing bubble, and for missing this bubble.
John and Aretha can sing "Respect", but I sure can't.
One Hell of a Time To Become a Trend Follower
Everyone who believes in valuation metrics would do themselves a favor to click on the three links by Hussman that I presented, and read the articles in entirety.
As I stated upfront, avoiding bubbles is incredibly hard to do, and this one has been exceptional. But that is precisely the problem with bubbles.
Hussman points out (and I agree) "The associated 10-year expected nominal total return for the S&P 500 is negative."
Read that sentence again and again until it sinks in. Here is another way of putting it. "10 years from now, the S&P is likely to be lower than it is today". That is how over-valued equities now are.
Yes, Hussman sounds like a broken record. And so do I. But this is one hell of a time to become a trend follower.
Mike "Mish" Shedlock
Read more at http://globaleconomicanalysis.blogspot.com/2013/11/hussmans-open-letter-to-fed-problem.html#lSwFEwzTtgUYTpyr.99
Groupon: Why Valuation Might Be A Concern At Current Levels- Seeking Alpha
“Groupon, like many Internet stocks such as Zynga (ZNGA) and Angie's List (ANGI) have benefited from some sort of social stock craze that is going on in this market,” says George Kesarios of Seeking Alpha. “However, eventually the market comes to its senses and marks down the excess price of stocks accordingly. And while many stocks or sectors can remain extremely expensive for a very long time -- giving the impression that this is the ‘new norm’ -- eventually what comes around goes around and investors learn their lesson the hard way.”
Forward PE: 36; Trailing PE: N/A
Estimate Trend: Downward
Ransom Note Trendline: Avoid Groupon
Fiat Punts Chrysler IPO To 2014- Forbes
“Italian carmaker Fiat Group said Friday that it will not be able to launch a planned initial public offering of Chrysler before the end of 2013,” says Forbes, “determining the timing is ‘not practicable.’ The hangup remains a disagreement on pricing between Fiat, which owns 58.5% of the automaker, and an healthcare trust for retired autoworkers, which controls the remaining 41.5%.”
Forward PE: 9; Trailing PE: 12
Estimate Trend: Upward
Ransom Note Trendline: Buy Ford
Lions Gate Entertainment Corp.
Lions Gate’s ‘Catching Fire’ Breaks ‘Hunger Games’ Record- Wall Street Cheat Sheet
“It was a big three days for Lions Gate’s (NYSE:LGF) Catching Fire this past weekend,” says the Cheat Sheet, “and Jennifer Lawrence managed to draw quite a crowd. According to the BBC, the second installment of the Hunger Games series sped to the top of the U.S. box office, scoring $161 million in its opening weekend. The film’s release became the most successful November opening of all time and even surpassed the first Hunger Games’s opening weekend, which took in $152 million when it was released in March 2012.”
Forward PE: 20; Trailing PE: 21
Estimate Trend: Falling
Ransom Note Trendline: Sell Lions Gate
The creative genius Charlie Chaplin said that an understanding of psychology is the basis for almost all success.
Chaplin was a gifted actor of course, but also a musician (he wrote and performed the musical score for most of his films) a producer/director and a very shrewd businessman. He understood the business value of the emerging film industry, and was one of the first independent filmmakers to own the rights to his intellectual property.
Charlie famously sold his large stock holdings in 1928, shortly before the crash. He understood the herd mentality of the bubble, and that if something seems too good to be true it probably is. So if you want to have success investing in the stock market, don’t forget psychology.
Specifically abnormal psychology. The diagnosis is in; this stock market is certifiably bipolar and schizophrenic.
Schizophrenic in hearing voices in its head. Whispering into its left ear is “I’ll give you free money forever” and in the right “I’ll cut you off, the people will realize that their paper money is worthless, they’ll riot in the streets and storm your mansion and chop your head off.”
Fortunately, for people with long stock positions anyway, the market is usually happy, like a maniac, listening to the whispers coming in from the left.
When the other voice gets attention however, it gets sad and depressed and sells-off quickly.
You treat a human with these mental illnesses with a cocktail of heavy psychotropic drugs. Right now the drug keeping the market happy, and the source of the voice from the left, is the Quantitative Easing by the Federal Reserve.
You get a positive report but is it too positive? Paranoia sinks in. Good news might mean a decrease in the amount of drugs you get. For a drug addict, bad news can be good, if what they are angling for is to stay on their meds.
It’s a little scary thinking about how much power and control the Federal Reserve has over our economy and the stock market right now. “When will the Fed start ‘tapering’ their Quantitative Easing?” That’s almost all anybody really wants to talk about.
I’m afraid Janet Yellen might let loose a big wet fart staining her undies and then immediately step into range of a camera. The grimace on her face captured in the photo might be misinterpreted as the start of a hawkish turn, causing a drop in the dollar in the Forex market, followed by a selloff in the stock market.
That’s about how precarious our situation is. A fart from Janet Yellen could result in a worldwide recession.
That’s a good environment for hedging. Don’t forget your short positions. If you ignore the short side, you leave a significant percentage of your potential profit on the table. The difference between betting on a long vs. short stock position is the difference between betting on a black flush, spades or clubs, vs. a red flush, hearts or diamonds.
The short sell, the put option, etc., they are there for a reason. The chances of an eventual sell-off are about as good as the chances that a bi-polar maniac will crash eventually, after a three day bender of mixing prescription drugs with alcohol and other self medication.
We have lots of friends in the environmental community. We value a vibrant natural world and we have and will continue to work toward such a world through various means. We are fans of solar power, and wind, and so called “alternative” energy technologies. But within the parameters of the market. If alternative energy sources can not operate within the marketplace such energies are by definition not sustainable.
The truth is that much of the money which went to “green” energy efforts during the first Obama administration went to connected friends and political rainmakers in the Democratic Party. The green stimulus money was a vehicle for people to get paid while they justified the largess bestowed upon them by taxpayers by thinking they were doing the “right thing” for the environment. So long as one does the “right thing” crony capitalism is OK.
The billionare who poured $8 million into my home state of Virginia from California in an effort to win the election for Clinton operative Terry McAuliffe, did not as far as I can see directly benefit from any Soyndra like deals. I could be wrong on this, but we are willing to give him the benefit of the doubt. But make no mistake, Tom Styer is a crony with deep ties to both the Clinton and the Obama political machines.
He’s kind of a poor man’s George Soros in that regard.
In the attached article (and general love fest) Politico examines in depth how Tom Steyer manipulated (entirely legally it must be noted) the Virginia gubernatorial race in 2013.
In my opinion it’s one thing for super rich guys to advocate for smaller government like the Kochs do. The Kochs are by no means perfect and have benefited from big government on occasion by their own admission, but they generally call for a shrinking state. This believe it or not is not in any industrialist’s best interest. Big government and big business are good friends.
It is far scarier when a super rich guys advocate for bigger government. They (think Soros, Warren Buffett, Bill Gates) can sell themselves as advocates of the greater good through larger government, while at the same time expanding their wealth. It’s the “I’m doing good so I deserve to get rich even if the taxpayers have to pay for it” mentality. Al Gore comes to mind. So does Tom Steyer.
A third, unstated goal has run through all of Steyer’s political activities: turning a hedge fund investor from the Bay Area into a national political figure. Most megadonors prize their privacy. But before Steyer’s team jumped into the Virginia race, it approached POLITICO about providing exclusive access to NextGen’s activities for a feature story after the election. In 2013, the towheaded, all-smiles Democratic financier has participated in major profiles in both The New Yorker and Bloomberg BusinessWeek.
The US post office was contemplating stopping Saturday delivery to reduce costs. Instead, the post office has gone the other way, at least for packages.
The LA Times reports U.S. Postal Service to deliver Amazon packages on Sundays.
Giant online retailer Amazon.com Inc. is turning up the heat on rivals this holiday season and beyond under a new deal with the U.S. Postal Service for delivering packages on Sundays.
Starting this week, the postal service will bring Amazon packages on Sundays to shoppers' doors in the Los Angeles and New York metropolitan areas at no extra charge. Next year, it plans to roll out year-round Sunday delivery to Dallas, New Orleans, Phoenix and other cities.
To pull off Sunday delivery for Amazon, the postal service plans to use its flexible scheduling of employees, Brennan said. It doesn't plan to add employees, she said.
Members of Amazon's Prime program have free two-day shipping and, under the new deal, can order items Friday and receive them Sunday. Customers without Prime will pay the standard shipping costs associated with business day delivery.
As consumers increasingly move online to shop, retailers are finding that their shipping policies can be a bellwether of customer loyalty. Though not necessarily offering Sunday delivery, many are testing same-day service.
Wal-Mart Stores Inc. is testing same-day delivery service in northern Virginia, Philadelphia, Minneapolis, Denver and the San Francisco and San Jose region. Last month, EBay Inc. agreed to acquire Shutl, a London start-up that uses a network of same-day couriers to deliver goods ordered online in hours, even minutes.
In March, Google Inc. said it would test a same-day delivery service called Google Shopping Express for online purchases in the Bay Area. Specialty sporting goods store Sport Chalet Inc. began offering a similar service in April.
But adding Sunday service takes the competition to a new level.
Why Go to the Mall?
Competition favors those with a vast array of merchandise and a way to deliver it quickly. Amazon and Walmart are in that class.
If you know what you want, or find what you want online, why go to the mall?
The answer seems to be tradition, or perhaps just to get out of the house. And for some, the walk in the mall is about the only exercise they get.
Same-Day Delivery Options
Why wait two days when you can get it in one?
SEJ reports Google and 6 Other Same-Day Delivery Services.
If you live in the Bay Area, you might be relaxing at home in your pajamas ordering all sorts of goodies and waiting until Google drops it off within the same day. If you haven’t heard, the tech giant is making life all that more instantly gratifying by expanding its same-day delivery service. Google is by no means the only company offering this kind of service, but it’s Google, so this makes it kind of a big deal.
For now, people in the Bay Area can order products from businesses like Walgreens, Nob Hill Foods, Staples, Blue Bottle Coffee, Target and Palo Alto Sport Shop and Toy World and have everything shipped by Google for $5. If this works out for Google, expect the following 6 companies to expand their same-day delivery service.
The behemoth launched its own same-day delivery service just in time to the holiday season in 2012. Costumers can order products from Wal-Mart and have them delivered to their home for between $7 and $10. The service is available in northern Virginia, Philadelphia, Minneapolis, Denver and the San Jose-San Francisco-area.
Shutl was a startup that originated in the UK and is similar to Google’s service, meaning you shop online and Shutl handles the delivery. The company claims that they’re “the world’s fastest, most convenient and best-loved same-day and same-hour delivery service.” Shutl is only available in Manhatten, but there are plans to expand to San Francisco, Atlanta, Boston, Denver, Detroit, Houston, Los Angeles, Miami, Minneapolis, Philadelphia, Phoenix, San Diego, Seattle, Washington, Montreal and Toronto.
The auction giant launched its delivery service, eBay Now, last year and charges $5 per store. What makes eBay’s service standout, besides the one-hour delivery time, is that the company focuses on local stores, however, you can still get stuff from major retailers. eBay Now is available in San Francisco and New York.
TaskRabbit was designed specifically for people who don’t have the time, or capability, to do their shopping. But, this service offers so much more than just having your groceries brought home. Businesses can use TaskRabbit to order and have supplies delivered to the office. There’s also the ability to find house-cleaners or handymen to do those things around the house that you just can’t get to.
Amazon are no strangers to same-day delivery service. The online shopping titan has offered Local Express Delivery Option since 2009 and can be found in Baltimore, Boston, Chicago, Indianapolis, Las Vegas, New York, Philadelphia, Phoenix, San Bernardino Area, Seattle and Washington, D.C. The service costs $8.99 plus plus 99 cents an item.
This startup takes the same-day delivery service to a whole new level. For example, after placing an order, you’re sent a photo and bio of your delivery person, aka you ‘Postmate’. Postmates also will inform you if a product is right around the corner, because that would be pointless for everyone, and they’ll also hook you up with all kinds of stores and restaurants in your neighborhood via Foursquare.
Is Same-Day Delivery What People Want?
In most cases it's not same-day delivery that people want, but rather, free-delivery and lower prices.
According to a study conducted by Boston Consulting Group, only 9% of the 1,500 U.S. consumers surveyed “cited same-day delivery as a top factor that would improve their online shopping experience, while 74% cited free delivery and 50% cited lower prices.” With the exception of some city dwellers with a little extra cash, same-day service isn’t a priority.
Who Is the Winner?
Competition is here, on multiple levels. Companies that offer the fastest deliveries at the lowest cost will have a huge advantage over their competition.
The winner is the consumer who gets faster service at cheaper prices. The loser is big-box retailers with huge shopping areas with little traffic.
Mike "Mish" Shedlock
Read more at http://globaleconomicanalysis.blogspot.com/#IeVDEWEa7AfpUFXM.99
Welcome to stocks in the news where the headline meets the trendline.
Stock Number One: ViroPharma Inc. (SYMBOL: VPHM)
And the headline says: Shire to pay $4.2 billion for rare disease firm ViroPharma– Reuters
“London-listed Shire is buying ViroPharma for $4.2 billion,” reports Reuters, “its biggest deal yet to strengthen its portfolio of lucrative drugs to treat rare diseases, which are attracting increasing attention from drugs companies as patents expire on their older treatments. Several companies including France's Sanofi, according to reports, were interested in ViroPharma, which makes Cinryze for the treatment of immune disorder hereditary angioedema.”
And right on time our friends, attorneys Levi & Korsinsky, Faruqi & Faruqi, Brower Piven will be investigating the deal to see if they can sue their way into some sort of the settlement.
We talked about this phenomenon before where as soon as a buyout occurs the attorneys step up and automatically investigate to see if they can troll for some dollars.
This is one of the reasons why Wall Street doesn’t work. This is one of the reasons why we need tort reform in this country.
Our Ransom Notes Trendline says: Sell ViroPharma
Stock number two: Apple (SYMBOL: AAPL)
And the headline says: Apple's Big iPhone Is a Big Deal– Motley Fool
“Despite the fact that Apple's new iPhone 5s has just been released to the world,” writes the Fool, “the rumor mill (Bloomberg) is already buzzing with claims that Apple is planning to launch two larger iPhones -- one with a 4.7" screen and one with a 5.5" screen. While Apple's move to larger iPhone models is inevitable, the company must be extremely careful about how it manages its suite of smartphone models going forward. Releasing a new, larger iPhone will help address more of the market, but there's a risk that if Apple simply kills the smaller iPhone, it may alienate a substantial number of its customers.”
Apple is currently trading 11 times it’s forward or earnings with an annual dividend of about 2.3%.
Analysts have been revising estimates upwards over the last month or so. In the next five years and also expecting the company will grow what your earnings by 14 to 15% average annually.
From a valuation perspective that means that Apple is a good prospect for growth and income investors.
Our Ransom Note Trendline says: Buy Apple
Stock Number Three: GoGo (SYMBOL: GOGO)
And the headline says: Gogo CEO: 'We're in the Very Early Innings' – Street.com
“Gogo (shares surged 25.8% to $23.59 in trading on Monday after the in-flight Internet company posted results that blew past Wall Street expectations,” says the Street.com. “Gogo posted a third-quarter loss of 22 cents a share as revenue rose 48% from last year to $85.4 million. Service revenue ticked up 52%, led by a 24% increase in the number of airplanes using Gogo's services, and a 21% increase in the average revenue per aircraft (ARPA).”
Here’s another IPO in the technology sector that needs to be avoided.
I love this company, I use this company, but I don’t look at this company as an investment.
Investments have to have some sort of profit, some sort of history, and some sort of discernible future.
That’s missing here.
Our Ransom Note Trendline says: Avoid GoGo
The President was either flat out ignorant of how the new health care program would impact people’s insurance premiums, or he flat out lied over and over to the American people. Take your pick. There aren’t too many other possibilities, and it’s hard to figure which is worse.
I take that back. Calculated deception is worse that bone headed ignorance. And I don’t think ignorance is what were are dealing with here.
The President knew that Obamacare would be repealed if the American people knew they were going to lose their health coverage and that premiums would skyrocket. Sebelius knew this. The whole White House team knew. Pelosi knew. A good part of the media knew.
But Obamacare was such an opportunity for the government to take over a large swathe of the economy (in partnership with the large health insurance companies – at least initially) that the president’s crew in the White House and beyond felt ,”The truth be damned. One way or another, we are doing this.”
At least that’s what I think they probably thought.
The ends justify the means. “One has to break a a few eggs to make an omelet.” Lie. Cheat. Steal. All in the name of “social justice.”
That’s not to say that the United States won’t make repayment arrangement s that are a virtual default.
In the age of virtual reality, a virtual default makes sense.
What would a virtual default look like? Pretty much like it does on the individual level, when you owe someone money, and you can’t pay it back so you convince them to accept something else. If you have something your creditor values as much or even more than the money you owe, then that can be a perfectly fine payment and no default at all. But if what you have to offer really isn’t worth as much as you owe, that’s a virtual default.
For the United States, the wild idea of having the Treasury mint a trillion dollar coin, that would be a virtual default.
That’s not the wildest idea out there however. We have some economic geniuses who say to themselves ‘Hey, if we can make a one trillion dollar coin, why not a 20 trillion dollar coin, or a sixty trillion dollar coin?’
This is the idea being proposed by our strange fellow-citizens over at MoveOn.
The last time I checked, they had 213 signatures for their petition demanding that “The President should immediately mint a $60 trillion coin, and use the proceeds to pay off the national debt completely, cover all likely deficit spending by Congress over the next 15 years, and take the issue of spending cuts in programs that benefit the 99% off the table!”
According to the site, they now have a “new goal” which is 300 signatures. So if you act fast, you might be able to join the MoveOn dream-team and get you signature affixed to this important petition.
You can’t argue with their logic. You might be able to if they actually used logic.
According to petition signer #206, Pamela Rees, it “isn't crazy, it's a tool and an opportunity to entirely reframe and alter the national conversation. The danger of Federal debt of a myth from which banks benefit and because of which people are, literally, dying. “
Signer #181 Jeffrey Kurland, spies a partisan opportunity in the scheme; ” Take down the Republicans and save the people from paying again for the vile financiers. Save our social democratic support programs.”
Frances Walker, proud petition signer #174, sees the coin as perhaps a kind of silver- bullet that can tame the Tea Party, “Please mint the coin to end the anti-government insanity “he writes in his comment field.
There is more, but let me conclude these examples by passing along the wisdom of John McDonald, petition signer #160, who solemnly states “This will end the foolish discussion on debt that has been going on endlessly for what seems like years now.”
In McDonald’s defense, I have to admit that this idea makes me also a little concerned about foolish discussions and debates that go on endlessly for what seems like years.
Unfortunately, our well-intentioned but misguided MoveOn-ers don’t really understand the concept behind the idea for a trillion dollar coin. It was a real idea, but it was never intended as real money paid to real people for real debt.
It was proposed as accounting trick between the Treasury and The Federal Reserve.The Treasury would mint the coin and with a wink give it to the Fed, who with a nod would hold it and give another trillion in credit, thus bypassing congress and avoiding the debt ceiling debate.
But they already have plenty of accounting tricks, and they don’t need or want a physical symbol of their wink and nod covert relationship. Plus, the Democrats always emerge from the debt ceiling-crisis-muck basking in the public’s adoration and shaking their head at the Republicans who seem bent on taking a Cruz to nowhere, impotently making threats they know that the Democrats know they can never follow up on.
And there you have the real answer. The coin trick could actually work as a technicality, a way for the government to keep borrowing and spending endlessly without having to worry about the bad publicity that comes with breaching the debt ceiling.
But they don’t need it. A gifted propagandist never fears bad publicity. For them, bad publicity is a weapon to spin back on your opponents. Which is why Republican can expect to take another beating early next year when they try to slow things down after the debt quickly climbs above 20 trillion.
Welcome to stocks in the news where the headline meets the trendline.
Stock Number One: Salix. (SYMBOL: SLPX)
And the headline says: Deal Creates Gastrointestinal Leader – OptionsMonster
“Santarus agreed to be purchased by Salix Pharmaceuticals for $2.6 billion, or $32 a share,’ says OptionsMonster. “SNTS, which closed at $23.22 yesterday, is ripping 38 percent before the opening bell on [the] tradeMONSTER platform. SLXP gains more than 11 percent as well”
So you want to know what’s wrong with the stock market these days? With America in general? I counted four law firms that are already threatening to sue Santarus Pharmaceutical over this deal because they’re sniffing more money.
They want Salix pay more.
Analyst from Cantor says Salix is paying too much for the deal.
What Salix is looking for is the existing distribution network that Santarus offers them further gastrointestinal products.
The company currently trades about five times sales, which is a little rich for any biotech.
Our Ransom Notes Trendline says: Avoid Santarus and Salix
Stock number two: Toll Brothers Inc. (SYMBOL: TOL)
And the headline says: Toll Brothers Floats New Stock Issue – Motley Fool
“Toll Brothers is hoping to strengthen its capital foundation with a fresh offering of common stock. The company announced it is floating 6.25 million shares in an underwritten public flotation priced at $32.00 per share. Additionally, the issue's underwriters have been granted a 30-day purchase option for up to an additional 937,500 million shares.”
Toll Brothers will use their $1.7 billion in cash to finance the purchase of a California-based homebuilder, as was announced earlier this week.
The company is trading about 21 times earnings, with forward projections for the next five years coming in about 19% average annual growth. Earning estimates in the short run have been paired back a little bit recently, however.
With interest rates expected to stay at current levels --if maybe just a little bit higher-- Toll Brothers should continue to be a leader in the industry. However it’s probably fairly priced as of now.
Our Ransom Note Trendline says: Hold Toll Brothers
Stock Number Three: J. C. Penney Company (SYMBOL: JCP)
And the headline says: J.C.Penney's October Results Signals Turnaround Taking Hold – JC Penny
“J.C.Penney’s sales release for October 2013 is very promising,” writes Walter Loeb of Forbes. “Sales increased 0.9% over the previous year.As I have written about in past blogs, it is what I thought would happen for several reasons including very easy comparisons and better management,” says Loeb.
The problem with JC Penny isn’t sales. It’s that they’re burning about $1 billion in cash every six months. They have about one $1.6 billion in the bank and are expected to lose $3.50 pre share in 2014 and over $6.00 per share 2015.
Same-store sales increases are great, but it doesn’t solve the problem that they’re not profitable. Much more likely that this company will going to bankruptcy even though we seen the stock price rally since mid-October
Our Ransom Note Trendline says: Sell JC Penny
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