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. Boo.com, Pets.com, and Kozmo.com 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 MarketI'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?
To continue reading, please click here...
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.
To continue reading please, click here...
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.
To continue reading, click here...
Earnings Fuel Stock Market Gains â€“ 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.
Click here to continue reading...
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."
To continue reading, please click here...
- You Asked, He Answered: Shah Gilani on China, Ben Bernanke, the Fed and Much More…
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 RateOver 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.