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Cash In as This Rural Telephone Company Outsmarts the Sector Giants

As the longtime subscribers among you folks know, we love spin-offs here at Private Briefing.

These corporate breakups are a way to make market-beating returns – and at below-market risk.

It’s that penchant for spin-offs that prompted our pre-breakup recommendation of Abbott Laboratories Inc. (NYSE: ABT) back in June 2012.

  • Stock Market

  • What Magazine Covers Really Say About the Stock Market Will Rogers once said that "good judgment comes from bad experience, and a lot of that comes from bad judgment."

    If he only knew.

    Then again, as one of America's famous humorists and social commentators, I suspect he "knew" all too well that history rarely works out the way people think.

    Take the late 1990s, for instance.

    As capital markets liberalized and the Internet Age began in earnest it was a time of great hope.

    Companies that had very little other than a ".com" after their name suddenly became worth hundreds of millions of dollars.,, and are a few that come to mind.

    But were any of them worthy of all the hype?

    I was one of the few who didn't think so. Many people considered me a Luddite because of it.

    I wasn't trying to be difficult. I just reasoned that when everybody "knew something" that the end was near.

    How did I know?

    Well I didn't...exactly. But, I had a good idea thanks to something my grandmother, Mimi, used to call the "country club" test.

    After being widowed at a young age Mimi was a seasoned, successful global investor in her own right. She reasoned that when an investment or a trend began making the rounds over drinks, it was time to move on.

    And if she heard something around the poker table, she'd actually bet in the other direction.

    One day, I asked what her secret was.

    In no uncertain terms she told me to look carefully at the world around me and, in particular, at magazine covers.

    According to Mimi, they were the next best thing to a crystal ball. Because whatever is all over the covers is what's on top of the mind on the cocktail circuit -- not to mention fodder for the masses...who are usually wrong.

    Frankly, I thought Mimi had consumed one too many martinis. She loved them. Then, as my own career progressed, I began putting two and two together.

    It turns out it wasn't the gin talking. Mimi was right.

    Magazine Covers and the Stock Market

    I've never forgotten Mimi's advice and still study magazine covers intently to this day because they help me latch on to important market shifts and trends that others either miss or simply don't see coming.

    I am not so much interested in the stories themselves as I am in reading into the implications of headline copy. Many times I find out that what's being said in the headline isn't as important as what's being left unsaid.

    For example, do you remember this magazine cover touting the "death of equities" from Business Week's August 13, 1979 edition?

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  • Why Investors "Sell in May and Go Away" The time-value-of-money concept forms the basic foundation for all investments.

    And like anything having to do with people, there are rhythms to the stock market that are a function of time-- whether it is the time of the trading day or a particular time of year.

    One of these seasonal rhythms is so strong it has given birth to its own adage. Every investor knows it.

    It's the admonition to "Sell in May and go away," and it's a proven strategy that results in gains for investors.

    According to Sy Harding, author of the book "The Bear: How to Prosper in the Coming BearMarket:" "Over the long term, the market makes most of its gains each year in the winter, and when there is a serious correction, it most often takes place in the summer. We've known about that pattern for decades. The pattern has been confirmed by independent academic studies."

    The Logic Behind "Sell in May and Go Away"

    There are a myriad of reasons for this, most having to do with the cash flow aspects of the business calendar.

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  • The Views from Near and Far There are always two ways (at least two ways) to look at everything, including the market. In fact, whether one looks at the market from near or far makes a big difference in what you see.

    Like most complex equations with multiple inputs, synthesizing the different inputs is critical to what comes out on the other end of your equation.

    In this case, I'm talking specifically about two inputs - the perspective from near and from far away.

    And I am talking about how they affect one's view of what's happening in the market and where it's likely going to go next.

    Thursday was a good example.

    Early in the morning (in my travels), I saw that the Dow futures were up 82, and I thought, it could be a good day and we might finally tip the scales resting on the pivot point fulcrum we've been teetering on for a couple of weeks now.

    As the morning rolled on, before the open, company after company reported earnings, and they all handily beat consensus estimates - some by huge margins.

    From a distance, if that's all you saw, you'd be inclined to think, as I did, that the market was headed for a great day.

    But that was just the far view...

    Closer to the action (which I wasn't always seeing, because I was in transit), as one after another earnings report came out, again before the opening, the futures ticked down, lower and lower.

    I didn't catch the open, so let's pretend I still don't know what happened at that moment.

    The opening is important because sometimes it sets the tone for the day, especially if the futures are up big and the market opens up strong and rises steadily from there.

    Of course, that's not always true, especially these days. But stay with me.

    Later in the day, I'm walking past a TV monitor that has CNBC on, and I see the Dow down 116. That's a far view, again.

    We ended up rallying towards the end of the day, and the Dow closed down only 68 points.

    But again, that was the view from afar.

    Sure, I see all that, and take the far view. But, I also take the near view.

    Up close, earnings look great, and the U.S. looks like it's "basing" and laying the groundwork for reasonable growth.

    All that is tentative, however, when we look closer.

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  • Earnings Fuel Stock Market Gains – Dow Jones Soared More than 100 Points Midday Yes, Friday was all about the earnings.

    The stock market rallied Friday thanks to a roaring round of positive earnings reports - with a little help from positive news out of Europe.

    Just after noon, the Dow Jones Industrial Average climbed 113 points, the Standard & Poor's 500 jumped 9 points and the Nasdaq gained 22.

    With little on the economic calendar to close out the week, and no major reports due, market participants focused on encouraging first-quarter results from a spate of several large and market-influencing firms.

    "There's been a wrestling match all week long between strong earnings and weak economic data. At the moment earnings are winning," Lawrence Centura, portfolio manager at Federated Investors told the Associated Press.

    Strong Earnings Push Stock Market Gains

    To date, quarterly earning has been pleasantly strong.

    "The number of companies reporting positive surprises is much higher than it typically is at this stage in the game," Fred Dickson, chief market strategist of D.A. Davidson & Co. told CNN Money. "They're only beating by a little, but it's still a significant number of companies and that's the wow factor."

    Of the 212 companies in the S&P 500 that have reported, better than 80% have exceeded expectations, according to Thomson Reuters. During a typical quarter, the percentage of companies that top forecasts is 60%.

    Here are some recent highlights:

    • Tech giant Microsoft (Nasdaq: MSFT) lead Friday's gains in the broad-based rally after beating expectations late Thursday, reporting sales growth of 6% thanks to its Window and Office products. MSFT gained 4.55% Friday to close at $32.42.
    • Investors also ate up better-than-expected numbers from fast-food king McDonald's Corp. (NYSE: MCD), which ended the day up. The company proved it remained a worldwide favorite with same-store sales up 8.9% in the U.S., 5% in Europe and 5.5% in Asia-Pacific, Middle East and Africa. Revenue rose 8% (excluding currency fluctuations).
    • Robust earnings from General Electric (NYSE: GE) pushed its stock up 1.15% to $19.36. GE narrowly beat expectations with quarterly profit of 34 cents a share, a penny higher than expected, and revenue of $35.18 billion compared to a forecast $34.7 billion.
    • Meanwhile, traders traded E*Trade (Nasdaq: ETFC) up some 6% on better-than-expected first-quarter results. E*Trade's first-quarter profit rose 38% from a year earlier.
    • Technology manufacturer Honeywell (NYSE: HON) beat on both earnings and revenue, sending the honey pot buzzing. First-quarter income climbed 17% from a year earlier, and the company raised its 2012 forecast.
  • Bank of America (NYSE: BAC) May Never Fully Recover Bank of America (NYSE: BAC) has been working hard to regain its profitability and stature, but a better-than-expected earnings report isn't enough.

    On Thursday the company reported earnings of 3 cents a share. Revenue came in light at $22.28 billion.

    Although analysts were looking for 12 cents a share, several weighed in saying that a $4.8 billion charge known as debt valuation adjustment (DVA) complicated the earnings report. Some say BofA actually beat core earnings expectations.

    Evercore analyst Andrew Marquardt wrote, "Our initial view of core is closer to 26 cents."

    Return on average equity of 11.05% beat fourth-quarter results, but was less than the 15.41% return the bank posted for the first quarter a year ago. BAC succeeded in reducing its credit-loss provisions to $2.42 billion from $3.81 billion in the fourth quarter.

    "You had very favorable tailwinds in the fixed-income markets and so trading revenues are very strong for this universe right now," Charles Peabody, an analyst at Portales Partners LLC in New York, said in a Bloomberg Radio interview. "There's no question the earnings that are being reported are very good -- the question is the sustainability."

    Despite beating estimates with its first-quarter earnings, BofA has struggled more than its counterparts in the wake of the financial crisis. The damage may be too much to allow the bank to grow to as big as it once was.

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  • Stock Market News: Best Buy CEO Quits; Here's What the Next Leader Needs to Do (NYSE: BBY) Former Best Buy Co Inc. (NYSE: BBY) CEO Brian Dunn resigned from the struggling electronics giant after just three years at the helm, the company announced yesterday (Tuesday), and just two weeks after announcing a major restructuring plan.

    According to Bloomberg News there was "no disagreement on any matters relating to operations, financial controls, policies or procedures." Dunn's departure was "part of a mutual agreement of the necessity to address the challenges that face the company."

    Dunn was with the company for 28 years, starting as a store assistant. Board member G. Mike Mikan will take over as interim chief executive.

    Despite Dunn's decades-long commitment to the company, he might not have had what's needed to dig Best Buy out of the hole into which it's sinking. The ailing retailer is in the midst of revamping its stores and overhauling its business model, attempting to attract customers - and more importantly, get them to buy.

    "[Dunn] grew up in the store. His specialty is the stores," Stacy Widlitz of SW Retail Advisors told The Financial Times. "Was he the right guy for the chief executive? In this environment he was probably not the ideal candidate."

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  • How to Use Options to Hedge Against a Stock Market Correction Stocks have been mostly higher the past five months, with the Dow Jones Industrial Average recently topping 13,000 for a few days and the Nasdaq Composite touching the key 3,000 mark on the final day of February.

    However, the markets have turned erratic the last week or so, and big moves like last Tuesday's plunge have left many investors to worry about a looming stock market correction.

    Normally, that would send options-savvy investors in search of protective puts so they could lock in profits on their long stock positions.

    In doing so they essentially are buying an "insurance policy" that would pay off should prices indeed turn lower in the next couple of months.

    But, as readers who checked out Money Morning writer Don Miller's Wednesday article on the VIX Indicator, which measures trading activity in options on the Standard &Poor's 500 index - and, by association, options on individual stocks comprising the major indices - last week's jump in volatility sent put prices sharply higher.

    In fact, the VIX Indicator itself jumped from just 16.83 on Feb. 23 to a reading of 20.84 on Tuesday.

    And, though it has pulled back a bit since, the volatility means merely buying protective puts at this time would be a fairly costly proposition.

    As an example, assume you hold 100 shares of stock in Las Vegas Sands Corp. (NYSE: LVS), having happily watched as the market's rally carried its price from an Oct. 3, 2011, level of $36.71 to a March 1 high of $56.82.

    However, the $3.33 decline by LVS last Monday and Tuesday leaves you little doubt the stock would be vulnerable in any upcoming stock market correction.

    And even though the stock rebounded to $55.29 by Thursday's close, you still feel like you need a little protection for your paper profits.

    So, what do you do?

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  • You Asked, He Answered: Shah Gilani on China, Ben Bernanke, the Fed and Much More…
    Thanks for flooding my email inbox. I asked for it...

    Let's start off with some comments and questions about Ben Bernanke and the Fed....

    Q: I see no distinguishable difference in the relationship that government has with the Fed/Banking Systemand some individual getting involved with a ruthless loan shark. ~ James M.

    A: The Fed has a no-interest rate policy, while loan sharks charge an arm and a leg. That's one difference. There may be others, but I can't think of any right now.

    Q: Shah I beg to differ with you re: your feelings towards Mr. Bernanke. Like you, he understands the... Read More...
  • Five Minutes with Fitz: Should You Buy This Stock Market Dip? The market's recent 45-day rocket ride was the longest uninterrupted climb without a triple digit decline since 2006 - until Tuesday when the Dow lost 203 points.

    The sell-off begs the question: Should you buy the stock market dip?

    First things first. The sky isn't falling even though there are a lot of investors who believe the worst after two tough days on Monday and Tuesday.

    In fact, if you remember your recent history, we used to eat declines like these for breakfast. Two-hundred-point days were not uncommon. For that matter, neither were 400-point swings only a few years ago.

    What investors need to realize is this: The stock market has come a long way in a hurry since establishing panic-driven lows on March 6, 2009.

    The S&P 500, for example, has tacked more than 100%. Compared to those gains, Monday and Tuesday's losses are just rounding errors in the big scheme of things.

    This means a portfolio worth $500,000 would be worth $1,000,000 today if it had been invested in something as plain vanilla as an S&P 500 Index fund only three years ago.

    On that basis alone, I could make the case this is the pullback everybody has been waiting for.

    But that's the problem...everybody is waiting on the same thing.

    Waiting for a Stock Market Dip

    According to various reports, most investors remain on the sidelines for reasons that are as obvious as they are self-evident - worries about debt, politics, jobs and the future dominate nearly every poll.

    You can see that if you look at stock market volume.

    It's down 50% since the financial crisis began. According to CNBC data, last Friday a mere 3.2 billion shares traded hands on the NYSE. Three years ago, that figure was 7.5 billion on an average day.

    This complicates technical analysis because it limits the statistical validity of many analytics that might otherwise be functioning normally.

    So what's a technical trader to do?...

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  • Steak, Hamburger and Dog Food: How the Government Lies About the Real Inflation Rate More experts are saying what most Americans have suspected for years - the real inflation rate is much higher than the government is willing to admit.

    Officially, the U.S. Bureau of Labor Statistics (BLS) says the inflation rate, or Consumer Price Index (CPI), for 2011 was 3%.

    But a report issued last week by the non-profit group American Institute for Economic Research (AIER) says the U.S. inflation rate for 2011 is far higher - 8%.

    AIER used criteria based only on common daily expenditures to more accurately reflect how inflation affects consumers. Their index excluded less-frequently purchased items, like automobiles.

    Economic consultant John Williams, an outspoken critic of the government's economic statistics, contends things are even worse.

    Using the government's old methodology from 1980 - before politicians started to monkey with the formula - he calculates the real inflation rate is north of 10%.

    That's more than triple the government's figure.

    Among the few in government who see this as a problem is Republican presidential candidate Rep. Ron Paul, R-TX.

    "You know this argument that the prices are going up about 2%, nobody believes it," Paul bluntly told U.S. Federal Reserve Chairman Ben Bernanke during a hearing last week. "People on fixed incomes - they're really hurting, the middle class is really hurting because their inflation rate is very much higher than the government tries to tell them and that's why they lose trust in government."

    Changes to the Real Inflation Rate

    Over the years, the government has made a series of adjustments to how it calculates the CPI, ostensibly to make it more accurate.

    However, critics like Williams say the inflation rate formula has been changed to serve political ends.

  • Dow Closed Above 13000: What Next? The Dow Jones Industrial Average closed above 13000 yesterday (Tuesday) for the first time since May 19, 2008, as investors remain optimistic amid global economic unease.

    The Dow gained 0.18%, or 23.61 points, to close just above the mark at 13005.12.

    The Dow's been flirting with a close above 13000 for a week now. The market has climbed despite concerns surrounding Greece as well as the continued U.S. economic recovery.

    "Don't forget that it's absolutely possible to have the markets move independently of the economy, and that's what... Read More...
  • The Trend is Your Best "Friend" in the Stock Market Everybody's got an opinion about the stock market.

    That doesn't make it easy for anyone who listens to anyone else, or worse, listens to everyone else, to get a clear picture about what's really out there.

    Of course, I have an opinion too. And of course, I'm going to tell you what it is.

    But first, let me say this about that.

    I never start with an opinion. I end up with an opinion, after trying not to have one.

    That means I know I don't know what's going to happen, so I have to look at what's really going on. And I get to my opinion by pulling back further and further until I can't see anything small.

    I pull back as far as I can because I want the big picture.

    And the big picture is all about the major trend. If you're on the right side of the major trend, you can't get killed. You might take a few hits, here and there, but you make money. And while making money is great, it isn't everything.

    There's something more, something bigger than making money...

    It is not losing money, as in, not getting hit so hard that you're hurting real bad, or that you get killed and are out of the game totally.

    That's never happened to me. I always make money, every year.

    It's not that I don't have losing trades; I have plenty of those. But I make money because I mostly ride the big trends.

    Usually, my losing trades are my more speculative trades, where I try and jump on a smaller counter-trend within the major trend.

    For example, I see the big trend as positive, so I'm mostly long (I'm buying), but I might think a stock is prone to a sell-off, so I'll short it. Sometimes that's a huge winner, but sometimes I will lose on a play that is counter to the trend because the major trend eventually overwhelms everything else.

    My point here is this...

    The trend is your friend, but within the major trend there can be opportunities riding mini-trends going in the opposite direction. Just don't get greedy on those plays; the major trend will eventually consume most smaller counter-trending plays.

    So, here's what I see, and here's my opinion about what I see.

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  • The Greatest Episodes of Market Manipulation…Is Silver Next? Market manipulation has a long and storied history.

    From the Tulip Mania of the 1600s all the way to the recent housing bubble, market manipulators have employed a wide range of tactics to lighten the wallets of unsuspecting investors.

    And even though market manipulation is prohibited in the U.S. under a section of the Securities Exchange Act of 1934 - it's as American as apple pie.

    Everyone from high-ranking government officials to investment bankers have been caught with their hands in the cookie jar.

    The list includes scofflaws like Ivan Boesky, Michael Milken, and Jack Abramoff.

    Jim Cramer, the host of CNBC's "Mad Money," said he regularly manipulated the market when he ran his hedge fund, calling it "a fun...and lucrative game."

    Not surprisingly, a recent study found that those closest to the information loop -corporate insiders, brokers, underwriters, large shareholders and market makers - are most likely to be the perpetrators.

    To give you an idea of how things work, here are three notorious examples of market manipulation.

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  • Five Ways to Make 2012 Your Best Year Ever I hear it everywhere I go. I'll start investing again...

    ...when the debt problem is fixed.

    ...when the markets pull back a little.

    ...when the EU crisis is over.

    ...when the elections are over.

    Chances are you've said some of these same things to yourself.

    Yet, waiting is exactly the wrong thing to do. Time is something you never get back.

    And when it comes to consistent investment returns, time is the one thing you always have to capitalize on - without fail.

    Besides, waiting makes it harder to get back in the game. Ask anybody who missed the S&P 500's 99.53% run up off March 2009 lows that carried things until April 2011.

    Or the 87.26% run up through July 2007 following the low set in 2003. Or the 569.25% move from November 1987 (shortly after Black Monday) through January 2000.

    No. The way I see it, the thing to do is to begin investing the moment you decide you want to. That way you pique your imagination, your motivation and your returns.

    Five Ways to Get Better Results in 2012

    Here are five tips to help you get started:

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  • High-Frequency Trading Could Cause Another Flash Crash The threat of another flash crash caused by high-frequency trading is as great as ever.

    And the next flash crash could be much worse than the one that shocked investors in May 2010.

    Although the Securities and Exchange Commission (SEC) has taken some steps to prevent another flash crash caused by high-frequency trading (HFT), some experts question whether the additional disclosure and "circuit-breakers" designed to prevent big, sudden price moves will make a difference.

    "Those things won't prevent another flash crash - they can't," said Money Morning Capital Waves Strategist Shah Gilani. "All they will do is soften the move."

    The real issue, Gilani said, lies with the computers that execute the trades - thousands of them in milliseconds.

    HFT has changed the nature of the stock market since these trades now account for between 60% and 70% of the transactions on the U.S. stock exchanges.

    "You can't stop a flash crash unless you stop the computers from doing what they're programmed to do. And that's not being addressed," Gilani said. "The SEC is looking at keeping the ship from sinking, not stopping it from hitting icebergs."

    HFT's heavy volume and high speed made it the prime suspect in the flash crash of 2010, when the Dow Jones Industrial Average plunged more than 600 points in five minutes, before recovering almost as quickly.

    Mini Flash Crashes

    Since then, the frequent occurrence of mini flash crashes - when a single stock or exchange-traded fund experiences a steep and rapid drop in price that quickly reverses - have served as nagging reminders of the vulnerability of the system to such events.

    "It's like seeing cracks in a dam," James J. Angel, professor at the McDonough School of Business atGeorgetown University told The New York Times. "One day, I don't know when, there will be another earthquake."

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