Archives for April 2012

April 2012 - Page 13 of 13 - Money Morning - Only the News You Can Profit From

Will JOBS Act Subject Investors to Another Groupon Inc. (Nasdaq: GRPN)?

Groupon Inc. (Nasdaq: GRPN) slumped 17% in trading today (Monday) on news that it had to revise last quarter's financials, causing critics to worry that the new JOBS Act would lead to more faulty IPOs this year.

Groupon Stock Price History
(Nasdaq: GRPN)


Groupon announced Friday it had a "material weakness" in financial controls. That led the company to revise its fourth-quarter financial results to reflect an increase in its "refund reserve accrual."

The results? Quarterly revenue fell by $14.3 million and net income slipped $22.6 million, or 4 cents a share.

Groupon already turned off investors this year when a dismal earnings report – the first since the company went public – came in below expectations. The latest misstep cost the company yet again.

Groupon shares ended the day at $15.27 a share, down 26% for the year and 24% below its IPO price of $20.

Perhaps Money Morning Chief Investment Strategist Keith Fitz-Gerald said it best: "This company is a train wreck."

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What Would Warren Buffett Do? The Hottest Trend for Savvy Investors

If Warren Buffett was going to invest in anything right now, where would he put his money?

At first, that question may be difficult to answer. But if you think about Buffett's classic investment approach – focusing on real assets with a reliable return and prizing valuation – it gets a little easier.

Stumped?

Try the housing market – single-family rental homes to be precise.

"If I had a way of buying a couple of hundred thousand single family homes and I had a way of managing them… I would load up on them and take mortgages out at very very low rates," Buffett said in an interview with CNBC. "It's a very attractive asset class right now."

It's a classic buy low, sell high opportunity – and one that more and more investors are taking advantage of.

In fact, sales of investment and vacation homes surged 65.4% last year to 1.2 million units, the highest level since 2005, according to the National Association of Realtors (NAR).

Naturally, low home prices were a major catalyst for that surge.

Last year, U.S. home prices were down 33.8% from their 2006 peak. But another factor was increased interest from investors – many of which boast six-figure salaries and desire a more consistent return than the stock market offers right now.

"I have doctors, lawyers, an engineer from Apple who told some of his buddies," Brian Hardie, who manages rental properties, told Forbes about his clients.

And with foreclosures on the rise this year, there will be an even greater opportunity for entrepreneurial investors, which means Hardie's client list at Regency Property Management will likely continue to grow.

Indeed, foreclosures that had previously been held up by litigation relating to robo-signing and other malfeasance on the part of banks are once again moving back through the system following a $26 billion settlement five major banks reached in January.

A February report from RealtyTrac showed new default notices – the first step in the foreclosure process – were up 1% from January. Furthermore, default notices increased dramatically in some states, such as Pennsylvania (35%), Florida (33%) and Indiana (37%).

As the NAR recently pointed out, 20% of February home sales were foreclosures. And if RealtyTrac's forecast for a 25% increase in foreclosures this year comes to fruition, the number of distressed sales will rise even further.

Meanwhile, the heightened rental property interest, dually helped by inflation, has given landlords more power – which means rents across the country are increasing.

This has created an optimal situation for investors that have the wherewithal to make it work for them.

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Mega Millions Reality: It's Tough to Spend $656 Million

In some places the queues stretched around the block.

Across the country, nearly everyone fantasized about how they would spend it if they were lucky enough to win the biggest Mega Millions jackpot of all time.

But the truth is: it's just not that easy to spend $656 million.

Many of the things you might spend the money on wouldn't be enjoyable, and might make you less happy than you were before you won.

Once the thrill subsides, the larger realities settle in.

I know that sounds crazy, but it's true.

Using my own tastes and preferences as an example, I'll explain what I mean. I'm comfortably well off, but nowhere near rich enough to "have everything."

The First Stop with My Mega Millions

The moment the check clears, baby, the first purchase is easy. I need a new car soon, and this would be the chance to get a real one.

The new model Bentley Mulsanne will set me back $329,000.

It was described by Top Gear, the British TV show, as "the archetypal Marmite car." For 70% of those who know what Marmite is, the immediate reaction of course is "Yuck!"

But listen, I'm British, I have the bizarre hidden gene that makes me like Marmite, and that's what Top Gear is saying – even though designed by Germans, it's the sort of car that especially appeals to Brits – very posh, old-fashioned looking interior, lots of leather and walnut, top speed of 185mph, but completely silent and effortless with it.

Brits have a fetish about this: not only do they want to be No. 1, but they want it to appear as though they got there entirely without raising a sweat. Very un-American, I know!

But that's about it for cars.

I don't want any of those million-dollar specialty Bugattis that do 300mph – my reaction speeds aren't quick enough.

Even with a mere Bentley, the nearest dealer is in New Jersey, about 90 miles from here, but I presume that if you pay them enough, they will come and pick the car up when it goes wrong.

I might be tempted by a 1938 Lagonda V12, with cocktail cabinet in the back seat. It's the car that made Hitler furious in 1939 when it set speed records on all the new German autobahns.

It would cost me about $1.5 million if I could find one- but God knows where the nearest place is to get a vintage Lagonda serviced!

Besides, I'll bet it's a bitch to drive – back then, Lagonda owners had a chauffeur.

Not all Its Cracked up To Be

The Lagonda example shows the snag in spending this kind of money – the upkeep costs and hassles can be horrendous.

Take real estate for example.

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Wall of Worry: It's Time to Make These Two Adjustments

The stock market is off to its best start since 1998, but now what?

The markets could continue drinking the good times Kool-Aid …

Or April could be the last hurrah before a May hangover has us all reaching for the Alka-Seltzer again.

What do I see and what will I be doing and advising my subscribers to do?

I'll tell you.

I've been a cautious bull since October and participating in the run-up, as I recommended you all do, too. But, as I've said, I've been too cautious and haven't beaten the lofty middle ground of the three major averages, which was 12% for this year's first quarter.

That's mostly because the Nasdaq Composite, now at 3,091.57, rose a whopping (as in crazy hot) 18.7% in the quarter.

How much of that rise reflects the shine of a single stock, Apple Inc. (Nasdaq: AAPL)? If you've read my articles on the Apple effect, you know how much. It's a lot.

The Dow finished the week and the quarter at 13,212.04. That's an 8.1% quarterly run. The Industrials are only 952 points, or some 7%, from their all-time high posted on October 9, 2007.

As for the more widely watched S&P 500, it rose 12% in the first quarter.

If the average of the averages, which is 12%, was to continue at this pace, we'd have a 50% gain in equities this year.

Is that likely?

Yeah, about as likely as you winning that mega lottery.

I'm a momentum player. That means I don't fight the tape (the tape, as in ticker-tape, was the old way of reading stock prices), but go with the flow. And I'll continue to maintain my long positions.

However, I'll take cautious over greedy any day, so based on some "stickiness" I see on the path ahead, I'm making adjustments starting this week.

Here's why.

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Stock Market Today: Why Avon Products (NYSE: AVP) Should Consider Coty Inc. Offer

Cosmetics company Avon Products Inc. (NYSE: AVP) rejected a $10 billion cash takeover offer from fragrance maker Coty Inc. – in what could be one of the first moves in a drawn out acquisition.

Privately held Coty offered $23.25 a share for struggling Avon. That's a 20% premium to Avon's closing price Friday.

Avon turned down the bid, saying it "significantly undervalued" the company. It also said the non-binding offer was "opportunistic," and Coty was simply trying to get a "free look" at Avon's financials without a solid commitment to buy.

But industry analysts said with all Avon's problems, the company should not be so quick to dismiss a purchase offer at a premium.

"It's an opportunity that the board should seriously consider," Sanford C. Bernstein & Co analyst Ali Dibadj told Reuters.

The news that Avon could be bought out soon pushed its stock up as much as 21% to $23.34 in early morning trading.

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The Next "Lehman Moment" Is Coming Fast

It seems that my latest edition of Insights & Indictments was warmly received by the bullish crowd, many of whom reached out to me to thank me for my optimism.

I'm sorry to burst your bubbles, but I am not a raging bull (but thank you for asking).

In fact, I'm still bearish.

There's a big difference between being bullish and playing all stocks (and other asset classes) from the long (that means "buy") side… and judiciously buying select momentum stocks with fat dividend yields, which is what I was recommending.

I was talking about taking the path of least resistance, which I identified as "upward," based on equity activity so far in 2012. You've heard the old adage "the trend is your friend." Well, that's what I was talking about. The trend has been up.

I'm bearish because I'm afraid of a European meltdown and a "hard landing" in China.

But there's a huge danger in missing what could be the beginning of a real bull market.

So, it makes sense to start putting on solid positions and even speculating here and there. But I am not all in – not yet. However, the time is coming. But, that is also the problem.

I'm fearful that a crash is coming, and maybe soon. If we get one, and everything flushes out and we get a capitulation bottom amidst a global panic sell-off, then I'll be all in, all the way, for the long-term. I'm talking about loading the boat up with stocks and commodities and enjoying a generational ride that will last for maybe 10 years, or more.

What keeps me up at night now, however, is the echo of 2007.

I call where we are now 2007.2. If we are facing 2007.2, then 2008.2 will follow with a vengeance.

I'm guessing the breakdown could come in the second quarter of this year (although it could also take as long as 18 months to develop, which would only make it 10 times as bad when it does come).

Think about what I'm about to lay out for you, and ask yourself,
what if he's right?

Back in 2007…

In the spring of 2007, U.S. Treasury Secretary Henry Paulson, when addressing problems surfacing in the subprime mortgages arena said things "appear to be contained." Fed Chairman Ben Bernanke said, "We believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited."

Comforting words, right?

Then, speaking to members of the Federal Reserve Bank of Chicago in May of 2007, Bernanke said, "Importantly, we see no serious broader spillover to banks or thrift institutions from the problems in the subprime market."

Comforting words, right?

Even before two Bear Stearns hedge funds imploded in June of 2007, the Fed Chairman was touting the virtues of derivatives and the widespread sale of mortgage-backed securities when he stated, "The key thing to remember is that these losses are not just held by American banks, as the bad loans were in Japan (referring to Japan's lost decade), but they are dispersed."

Comforting words, right?

Then, on August 9, 2007, after one Bear fund was shut down and the other fund temporary propped by an injection of some $3.2 billion from Bear itself, and the seemingly contained fallout from subprime and AAA mortgages hitting "dispersed" banks in Europe, the European Central Bank's website quietly announced that the ECB would provide as much funding as banks might wish to borrow at only 4%.

What was happening was that European banks weren't lending to each other. The commercial paper market was at a standstill, and there was no short-term funding facility open wide enough to finance their longer-term mortgage positions. And they couldn't sell their positions because after the Bear funds imploded, there were no buyers for mortgage bonds, even the super-senior AAA tranches many European banks and all the big American banks were holding.

Two hours later, 49 banks borrowed three times what they were usually asking to borrow. And by the time trading closed in the U.S. on that same day, gold had spiked higher, as had safe-haven U.S. treasuries.

Of course, the equity markets were doing their own thing and were rising that summer, nearing new all-time highs (which they would reach in September 2007).

It took another year before we got our "Lehman moment." But,
boy did it hurt.

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These High-Tech IPOs Are Fueling the Nasdaq Rally

Don't look now but big paydays are here again in the tech-heavy Nasdaq.

From the depths of the 2009 bottom, the Nasdaq is up 139%, hitting levels it hasn't seen in more than 10 years.

In the last three months alone, the bellwether index is up nearly 19% — outpacing the 12% gain in the S&P 500.

But here's the thing: It's not all about Apple.

The high-tech IPO market is practically on fire. One of them is Jive Software (NASDAQ: JIVE).

Since Jive debuted last December, shares have jumped 25% from the offering price on the first day.

Since then, the stock has done nothing but power ahead. At the close of trading Thursday, Jive had nearly doubled in less than four months!

Hot High-Tech IPOs are a Major Market Trend

But that is just the beginning. Successful new issues like Jive reflect major trends reshaping markets.

Jive creates tools that help businesses run social networks, clearly an important way for many firms to reach new clients.

Jive is hardly alone. Several high-tech IPOs are showing excellent returns in the market's strong rally.

In fact, this actually is the best overall period for tech stocks since the "dotcom" crash 12 years ago.

Aside from Jive, several other IPOs have turned in double-digit gains in the last several months helping to lead the overall market higher – especially the Nasdaq.

Of course, the Nasdaq still needs another 40% surge to match pre-bubble values. But that's not the point.

Investors need to remember that every bull market contains leaders that have new products in new fields.

That is what always lands solid high-tech IPOs in the winner's circle.

The good news for investors is that they can expect to find more new issues in the weeks ahead.

PricewaterhouseCoopers LLP said in a recent report that 274 firms filed registrations in 2011, the largest number in several years. Of those, about 160 remain in the IPO pipeline.

Now don't get me wrong. I'm not suggesting you throw a dart at the IPO board. Far from it.

You still have to remain a disciplined, focused investor.

Just think if you'd tied up a lot of funds in BATS Global Markets. The tech-focused exchange had to withdraw its IPO last week because of a software glitch.

Of course, that kind of mistake isn't just stupid. It's inexcusable. But let's not focus on the negative.

There are just too many winners to look at.

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With or Without "Obamacare" These Healthcare Stocks Are Headed Higher

The fat lady hasn't sung yet…but she is warming up.

Three days of arguments before the Supreme Court have made it abundantly clear – "Obamacare" is in danger of being gutted or completely wiped off the books.

Only one thing's for sure. Investors will want to keep buying healthcare stocks -especially as 10,000 baby boomers a day turn 65 years old for the next 20 years.

But there's one segment of the healthcare sector that will be sitting in the driver's seat when it comes to delivering healthy profits and investment returns – no matter how the court rules.

Here's what you need to know…

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Ron Paul, Maxine Waters Among 248 House Members Lining the Pockets of Relatives

Blunt libertarian Rep. Ron Paul, R-TX, and outspoken liberal Rep. Maxine Waters, D-CA, would seem to have little in common.

But Ron Paul and Maxine Waters do share at least one dubious distinction. They both like to put family members on the payroll.

In terms of numbers, Ron Paul has enriched more relatives – six — than any other House member over the past two election cycles.

Though Maxine Waters had just two relatives on the payroll, her daughter and her grandson, she was more generous than Paul. Waters showered her relatives with a combined $495,650, while Paul doled out $304,599.

The unlikely pair features prominently in a new report from the Citizens for Responsibility and Ethics in Washington (CREW), "Family Affair," that details how 248 members of the House of Representatives have been using campaign funds to pad the pockets of their relatives and, in some cases, themselves.

And as is often the case with such Washington shenanigans, no rules were technically broken.

"A lot of what was done is legal, but a large segment of the contributing population would be surprised to see that their donations went straight into the pockets of congressional family members," Melanie Sloan, CREW's executive director, told the Los Angeles Daily News.

"There's all sorts of ways members of Congress can further their family's financial interests, which amounts to nepotism."

The widely known Ron Paul and Maxine Waters demonstrate that such practices are bipartisan, although Republicans cited in the CREW report do outnumber Democrats 143 to 105.

The key findings in the CREW report, which focuses on the 2008 and 2010 election cycles, paint a picture of lawmakers unabashedly using their positions to enrich family members as well as themselves:

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