Tuesday, May 28, 2013

The Finish Line Focus Article

Just published "Finish Line: A Weak First Half May Produce Significant Buying Opportunities" over on Seeking Alpha.  Check it out!

Monday, May 20, 2013

That's the news

I knew things were bad in France, but I couldn't believe this headline.  I thought there had to be a gimmick.  But no, it's for real.  The only "gimmick" is that it's supposed to be a one-time thing.  I'm not sure why there are any rich people left in France, or any business for that matter.  Why would anyone want to stay and be taxed at even 75%?

France Still Business Friendly, Foreign Minister Argue

"France remains the fifth economic power in the world, the fourth in terms of foreign investment. It's one of the best places for technology, for trade," Fabius said, answering a question about whether France remains a friendly place for business.
It seems to me that if you have to say your country is business friendly, then maybe you need to reevaluate your definition of friendly.  To be fair, though, it appears that France has been backtracking on some of its tax increases on wealthy individuals and business.  But that doesn't make them business friendly exactly.  It seems kind of like kids, who will do just enough to keep their parents from getting mad and saying no when the kids want to do something, but nothing more.  I don't call that friendly.  But then, maybe this is the future of the world.  No real incentive to take the risk of starting a business, no incentive to innovate.  So, no matter how much you love business, it just won't be there.

German Memo Labels France Europe’s Problem Child

The memo attacks France's increasing labor costs and minimal investment in research and development. It notes that France has the "second-shortest working year" in the European Union and its tax load is "the highest within the euro zone."
 This makes me wonder just how long France will remain the "fifth economic power in the world," etc. as was stated in the previous article.

Amateur investors tap 401(k)s to buy homes

Galaris said amateur investors sometimes spend all their free cash on their purchases and then have to scramble to pay the fees. If real estate turns south again, that could leave a lot of investors in dire financial condition for their golden years.
Nah.  This time it's different.  Perhaps one of the most troubling lines in this article is this one:
"Our average client has retirement accounts of about $150,000 and is looking to buy one or two properties," he said. "After 2008, they didn't trust Wall Street. They wanted hard assets."
They didn't trust Wall Street?  Okay, they never should trust Wall Street.  Everyone there is out to get as much of your money as they can.  But, seriously, didn't these people hear about the collapse in real estate?

Record Powerball jackpot inspires office pools
"People don't realize that this is serious business," said New Jersey attorney Rubin Sinins.
Yeah, there's nothing serious about a few hundred million bucks.  It's all just for fun.

Friday, May 17, 2013

That's the news

JPMorgan Goes All-In on Rally, Sees Surge Growing

This is the kind of thing that should really send investors running.  Analysts are raising forecasts for the stock market, and it has nothing to do with how the companies themselves are doing.  Instead, it's more like this: "It went up more than we thought it would this whole year, so we think it will go up a lot more."  And that's what they'll think right up until it goes down.  I'm not saying everyone should bail out; I'm saying don't get overly complacent.  I don't know how long the bull market will last... could be a day, or it could be five years, like I read yesterday.  I think the risk is getting higher, both on the plus and minus side.  There is still lots of money on the sidelines, which could push stocks a lot higher.  On the other hand, I've been reading that investors that are in the market are somewhat leveraged, and leverage makes for some pretty volatile markets.  In the end, as I've been saying, the longer this market continues, the worse the end is going to be.  Well, probably.  A bad ending isn't inevitable, but it is likely.

Gold’s Tumble To Continue: Hays

Yay!  Of course, nobody knows this, or remembers this I'm sure, but I actually said that gold at $1,500 was about the top.  It took a few months to get up to $1,800, which is still a 20 percent rise, so perhaps I wasn't as prescient as all that.  But now, with gold under $1,500, I feel somewhat vindicated, even though I'm sure nobody remembers my comments at the time.

May consumer sentiment highest in nearly six years 

It was the highest level since July 2007.
It sounds good, but take a look at this chart of the S&P 500.  See those three big peaks near the end?  See that middle peak?  That's July 2007.  Whee!

Tuesday, May 14, 2013

That's the news

Now you can see why it's so hard to just ignore those big shot stock analysts at, in this case, Morgan Stanley.  I guess HOG isn't going up fast enough for those guys, so they need to pump the stock with interviews, and showing statistics that show that there's correlations between housing and Harley-Davidson stock.  I'm not going to bother researching this, but I'll bet that there is a similar correlation between just about any consumer durable product and housing starts and home prices.  And, I'm pretty sure there's also a correlation between home prices and housing starts, because if home prices are going up, homebuilders want to have more homes to sell.  Okay, so I'm just a little bit jealous because I can't go on Bloomberg TV and tell people why my price target on Harley-Davidson is so great, thus helping ensure that the outcome is what I say it will be, and making myself look more like a genius than I already do.

Wall Street jumps as banks lead S&P 500 to new high

"We're riding a self-fulfilling prophecy of momentum. There's no fundamental reason for today's move, other than the continued easing by the Fed and momentum," said Paul Radeke, vice president at Minneapolis-based KDV Wealth Management.
Yep.  And, just so everyone knows, this is exactly how bubbles start.  No, I don't think the stock market is exactly in a bubble per se,  just a bit overvalued.  I do think there is the potential for the stock market to turn into a bubble.  And I do think there is the potential for a significant reversal.  But to in order for the stock market to be a "bubble" I'd have to see some higher valuations than what I'm seeing.  Sure, there are some stocks that probably are in bubble status (AMZN comes to mind), but overall, no.  Maybe a better way to put it is we are in the early stages of bubble formation.

With that out of the way, what really caught my attention in the above linked article was this:
Growth-orientated stocks were among the day's biggest advancers, with large-cap bank stocks leading the way.
"Growth-orientated?"  You know, I've had to force myself to at least try to be tolerant of bad grammar, but I have to draw the line when it comes to professions which require writing skills.  Try "growth-oriented."

NY Fed Study: Stocks Have Never Been Cheaper

Specifically, the analysis shows equity risk premium, or the excess return that investors expect to get from stocks versus a risk-free asset, has never been lower. Of course, part of this calculation is based upon the fact that interest rates are historically low, but Baker says there's more to it than that.
This article, and the associated Fed study, probably deserve way more than a mention on my news post, so be watching for it.  This is exactly the kind of reasoning that causes asset price bubbles.  On the surface, the reasoning sounds good, but it's backwards.  The equity risk premium being low actually means investors aren't recognizing the risk in stocks.  They believe, as I pointed out in another post, that "stock markets are becoming safer," when in fact, stock markets are just as risky as always.  And another way to see it is this: when the equity risk premium starts to rise, what do people suppose will happen to stock prices?  They will fall.  So, why is the Fed publishing such nonsense?
"Clearly the Fed's motive is to put money back into equities. 401(k)s will be higher, people will feel like they've got more assets and will be spending more money," he says. "I think it's interesting that the Fed is coming out and actually using some propaganda to try and get money into stocks."
 So, while investors have been putting more money into stocks, apparently (much like the Morgan Stanley analyst talking about Harley-Davidson above) they're not doing it fast enough for the Fed.  So, the Fed fabricates a ridiculous line of reasoning about risk premia capitalizing on most people's confusion over required return versus expected return and, voila, mission accomplished.  People feel richer, spend more money, and hopefully with all that extra money being spent, corporate profits increase and it turns out that there is no stock market crash; instead earnings rise quickly enough to meet the excessive expectations that are priced into the market.  Kind of like the federal government's apparent attempt to lower potential GDP in an attempt to close the recessionary gap, rather than raise GDP.  It will certainly be interesting to see how this all works out.

Sunday, May 12, 2013

Markets are becoming safer!

Sometimes, you can get a good idea of overall market sentiment and how risky it is to invest, not by reading what analysts have to say, but by reading the comments on articles.  Here's a good example of an actual comment on an article I read a short while ago.  I actually don't remember the article; it was that unremarkable.  But this kind of comment really catches my eye:
Bonds are in trouble at such low yields as the Market becomes safer. It seems to be there will be much more exodus from Bonds for the foreseeable future.
I especially love the part about the market becoming safer.  If I start seeing a lot of this type of comment, I'll know it's time to sell.  Just to be clear, the market never gets safer, except when everyone thinks it's not safe at all.  And, what is that about bonds, anyway?  I'm not sure where this "exodus" is happening either.  I suppose it could be... I'm sure some people have sold out of bonds, but the Fed is busy buying.  I don't know why anyone would buy Treasuries now anyway.  There are a lot of better investments... of course, those do involve taking risk... oh wait.  The market is getting safer every day now!

This is why I use the method that I use for valuing stocks.  I actually don't care how much the company is actually worth.  I only care how the market is currently valuing a company, and how I think they'll be valuing that company in the future.  The intrinsic value of a company is probably useful to know, and I do attempt to figure that from time to time, but in the end, it's really all about how the market values the company, which rarely, if ever, actually matches the intrinsic value.

Friday, May 10, 2013

That's the news

Before I start with the news, I just want to offer an update to my report on Seeking Alpha about Harley-Davidson.  Not long after I published that article, a Morgan-Stanley analyst initiated coverage (I think it was rated a buy) with a $62 price target.  So, I started thinking that maybe my target of $60 was a little too conservative.  After all, the market is reacting pretty darn positively to the Q1 results, and that could push the stock much higher than I had forecast.  After some reflection, I didn't change my forecast, and here's why.

First, HOG makes money by shipping to independent retailers, and in Q1 the Company shipped more units than were sold at retail, meaning the results were in part due to "channel stuffing."  By saying that, I don't want to imply that management intentionally did something to make the results look better than they were; I'm just saying that those bikes still need to be sold at retail before you can really call them sold.  Dealer orders will be lower because of those excess bikes in inventory.  Of course, it could be that Q2 retail sales will surpass expectations, in which case, no harm done.

Then, I watched a video, which at first glance didn't have much to do with Harley-Davidson.  It was about beer sales, and how the weather, and expected weather for this summer are expected to affect those sales.  Here's the link: Big Breweries Face Threat Worse Than Craft Beers.

The main takeaway from the article is this quote:
"If it's nice and warm out, there's more people that are outside mowing the lawn, having picnics, at ballparks, and what do they do? They drink beer," Walsh told “Big Data Download.” He said big brewers already saw lower beer sales in the first quarter of the year.
 Well, they drink beer and ride motorcycles, actually, although we hope they don't do those at the same time.  Anyway, although the article doesn't mention it, the video goes on to say that too hot temperatures can also negatively impact beer sales because people tend to stay indoors with air conditioning, and I guess air conditioning and beer don't go together.  I suspect, though, that extreme heat can also put people off from riding motorcycles since you could just get in your air conditioned car.  So, as I see it, moderate temperatures in the Spring are much better for beer and motorcycle sales, and at least locally, it looks like temperatures are going to go from cooler than normal to HOT.

Then I started thinking about how that might affect motorcycle sales for the whole year.  I mean, if I were going to invest that kind of money in a motorcycle, I would want to have as much riding time as possible that first year.  So, if bad weather delayed my purchase, I may just wait until next year, when I can get the maximum utility out of that bike right away, and spend my money this year on something else, like an air conditioner.

Of course, there is one other factor, and that is the by now over-reported end of the Social Security tax holiday, which gave most people a 2% haircut on their paycheck.  I suspect that at least some of the less than stellar retail sales for Harley-Davidson can be attributed to that.

At any rate, I'm still sticking to my guns with the $60 price target on HOG.  Anything over that at this point would just be speculation.

As Stocks Rise, Frustrated Investors Vent About Ben Bernanke
Some guys don't understand monetary policy and think he's doing wrong thing.

Others think it's immoral that markets aren't let to clear (meaning, collapse to a point where someone will swoop in and just buy). Others are pissed because they missed the rally so they blame Bernanke as the exogenous factor that made them wrong. Like "if not for this STUPID policy I'd be making money."
All three of these boil down to the same thing: "My investments are under-performing and it's the Fed's fault."  Cuz, you know, it can't be my own fault.  I'm that awesome.  Of course, then there are the guys that want to point out their own investment results and claim sole responsibility.  It's easy to be a genius in today's stock market.  In fact, all you have to do to be a genius in today's market is read Benjamin Graham's Intelligent Investor (or at least say you did and know a couple of stock valuation metrics), pick a stock with a decent dividend payout, say something like "I feel like it's gonna go up," (because these days investment analysis is kind of like channeling the spirits), and sit back and wait for the world to name you "stock guru of the month."  Make one great call, and suddenly you're a hero.  Make enough calls, and your hero status is virtually guaranteed since sooner or later one of those calls will be great.  And what that all means is that people either love or hate the Fed, but the people that love the Fed won't admit it.  Except for me.  I love the Fed.  Sometimes.

Bernanke says Fed increasing financial monitoring

Nothing really earth-shattering in that last link.  It's just kind of a slow news day.

Monday, May 6, 2013

That's the news

Analyst starts Harley-Davidson at 'Overweight'

A Morgan Stanley analyst started coverage of Harley-Davidson with an "Overweight" rating on Monday, saying that the motorcycle company has managed to transform its business so that its production matches demand better.
Perhaps, but I'm still not convinced, which is why I said Harley-Davidson was fairly valued, and I'm sticking to that assessment for now.

Buffett says economy on mend, bonds 'terrible' investment 
"Bonds, they're terrible investments now," Buffett said. "That will change at some point, and when it changes, people could lose a lot of money if they're in long-term bonds."

He said stocks, in contrast, are "reasonably priced," though he continues to shy away from sectors such as media, where he cannot reasonably predict who will thrive in the long run.
So, I've been saying this for a while... But, now that Mr. Buffett says it, it's news.  Hmph.  Of course, I'm not sure about the "stocks are reasonably priced" statement.  Some are, and some aren't, and overall, I think stocks are a bit overvalued.  Maybe we just have a difference of opinion over what constitutes "reasonably priced."

Clearwire says Sprint offer best option for minority stockholders

Sprint offered to buy Clearwire in December for $2.2 billion but satellite TV provider Dish Network Corp announced a counterbid of $2.3 billion in January.
I don't really follow any of these stocks, but this line is fascinating.  Apparently, an offer of $2.2 billion is BETTER than an offer of $2.3 billion.  Perhaps someone out there can explain that logic to me, and then cut me a check for the bad $100 million difference.

Friday, May 3, 2013

Harley-Davidson focus article

Harley-Davidson Is Fairly Valued

My latest article on Seeking Alpha.  Check it out!

That's the news

Job growth beats expectations in April

Still, some details of the report remained consistent with a slowdown in economic activity. Construction employment fell for the first time since May, while manufacturing payrolls were flat.
So, where are the jobs?  I hear McDonald's needs some liberal arts grads to flip burgers.

Warren Buffett on Fed, IBM, His First Tweet
I don't see the big deal.  I had a first tweet years ago, and nobody cared.
In an interview that aired on " Squawk Box " Friday, the Berkshire Hathaway (BRK-A) chairman and CEO said, "Basically [the Fed] is buying the debt we're creating and to go beyond that is an awfully big number."
Yeah, it's a really super duper big number.  Now can I have a cookie?

Not surprisingly, he quickly attracted a big following. And as of Friday morning with only two tweets sent, he had over a quarter million followers.
Cuz, you know, he's probably gonna tweet about whatever his next investment will be, so that the people following him can get in first.

Okay, I admit it.  I'm following Warren.  In fact, I've been following since he only had one tweet, and a little over 5,000 followers.  Those were the days.  Yesterday.

Nestlé recalls CPK, DiGiorno frozen pizzas nationwide

“The reason for the recall is that the pizza may contain fragments of clear plastic," a statement from NestlĂ© USA reads. “A small number of consumers reported that they had found small fragments of plastic on the CPK Crispy Thin Crust White pizza.
And here I thought plastic was pretty much a regular ingredient in most processed food.