Thursday, October 6, 2011

Occupy Wall Street, Change The World

Question 1) Why do we hate Wall Street so much?

Is it the greed, the riches, the intelligence, the power, the ability to control the world, the ability to pretend to be God in some aspects?

We have made Wall Street and American Symbol - just visit the Financial district and any given day and watch the tourist flock.  

And we have made Wall Street a symbol of capitalism gone wrong. Just visit Wall Street - tomorrow.

I think Wall Street has become the scapegoat of the recent poor economy. All though, it may have only played a small portion in the recent recession and the following slow recovery, but what a great scapegoat it has become. (We'll talk more about this later).

Answer 1) We don't hate Wall Street, we love making it a scapegoat

Question 2) What do we hope to accomplish during "Occupy Wall Street"

We'll it certainly has media attention. And the message is fat-cat bankers have been in power too long. So we want someone to be in control.

Maybe, we should put in control all of the protesters... Where would they begin, how would they execute on there newly found power? (Rhetorical)

Maybe, they want to mess up the transportation in New York and make people with other things to do angry, then those angry people will take it out on fat-cat bankers

However, it is most likely that these people just want to protest, complain, and procrastinate in other areas of there lives.


Let's point the finger at Wall Street, and procrastinate about the rest of our lives. You will become my scapegoat, and I can delay doing the things that will really change the US economy.

I don't want Job - I want socialism.

Sunday, September 11, 2011

The Week Ahead - 9/11/11

Dendreon Corp. (DNDN) did drop to $10.50 last Monday, and if you would have bought you would have experienced the $0.90 bounce when DNDN closed at $11.40.

The VIX ETF I chose, VIIX returned over 11% last week.

Financials lost almost 6%, and Energy lost just over 5%. While the S&P500 only lost about 2% last week.

Despite some pretty good predictions over the past few weeks, this weeks prediction list is short. Sometimes the best move is to buy the market and hold. And if you are looking for a second move, short the VIX index. The market is going to slow, and probably experience a slight positive growth.

Thursday, September 8, 2011

Google's Best Acquisition Deal Ever

Today, Google announced it had acquired Zagat the restaurant rating and review service. The amount of the purchase was not disclosed, due to the fact Zagat is a private company.

However, it is safe to estimate that Zagat probably went for $500M to $1B. Using the fact that Google offered $500M for Yelp who had less revenue but more growth potential in 2009.

Acquisitions are already exciting, because investors gain key insights into the future of the acquiring business and can then begin to analyze the deal, future implications, and resulting impacts.

However, the Zagat deal is extra exciting. It is a once-in-a-blue-moon kind of deal. The unicorn of mergers and acquisitions. Why?

1) Very rarely will a giant company acquire a niche company that doesn't operate anywhere near its industry. Zagat has hardly any online presence, and probably doesn't make a significant amount of money from their online business.

2) Companies hardly ever acquire small companies that will require them to enter very new industries. Google is now going to be responsible for creating unique, original content. Google is also going to have to begin print publishing and merge print publishing with online content profitability.

3) A national company tries to get smaller. Millions of restaurants advertise with Google, and now Google is going to have exposure to small local restaurants.

The Google acquisition of Zagat is so out-of-the-box, not compatible, no synergies type of acquisition that it is actually going to be great.

Google is now venturing into content creation. A very large aspect of the online world, that Google has avoided till now. Success and learning curve advancement will lead to more acquisitions and more growth in this arena. Although content creation is highly competitive, Google can get that content out easier than any other site.

Google is also getting away from the Internet. This is scary. Google making print books, and I thought they were going to scan every book in the world. Although, the printed versions of Zagat will change drastically again Google is going to do what no newspaper has been able to do. Take a print publication, and make it way more profitable online.

Finally, going local is like arteries leading to capillaries. Google is growing capillaries, it can now feed the blood to the smallest of cells. Being able to do this goes beyond large organization to super organization.

Just to recap, Zagat is forcing Google out of its comfort zone on several fronts. And each front is going to make Google grow into a new area that will be very lucrative and profitable for the company.

Great move Google, I believe again.

Tuesday, September 6, 2011

Update on BAC, and Grandpa Buffett

Yes, since Korea and Grandpa Buffett purchased their shares of Bank of America (BAC) they have both lost money. Let's assume your are Buffet leach and purchased those shares right at market open for $9.35 a share (SOMEONE DID).  Well I hope you are crying since its only worth $6.99 a share at close today. Thats a 30% loss in less than 2 weeks, congratulations.

Just as a quick update there are still long-term problems with BAC's operations and balance sheet. I think with certain strategic investors and the recent news of re-organizing the company the long-term may be a little rosier, but the company is still overvalued. Also, ousting Krawcheck was really only an investor relations move. They still have to address the real personnel problems, cut management and employs and trim even more fat.

Let's see a positive financial quarter and earn some money then talk about BAC as an investment prospect.

My advice: continue to stay away.

Market nears a good entry point, but more corrections to come

There is a very data rich article speaking about how stocks are at a better valuation than they were 3 months ago. The main argument is that P/E and CAPE metrics for the S&P 500 and lower than three months ago.

Although, this is an excellent observation. It does not even start to speak to the long-term picture. Yes the forward PE today for the S&P 500 is around 12.5, which is lower than the 14's and even 15's we have observed over the past few quarters.

However, let's think about the long-run historic average. This is 12.1 form 1976-2003. Now this number includes a wide array of different economic situation, nonetheless we should be able to equate the average economic expansion over the same time period to that PE.

Now we have to ask, is paying 12.5x the earnings today as valuable as paying 12.1x for stocks for the 27 year period. Remember, we are talking forward P/E so you have to imagine you are always looking into the future for each year/quarter. The fact of the matter is although we had some down cycles between1976-2003, this period is marked by a good majority of rosy looking years, and really only a couple of years that the markets lost double digits or were in a recession.

Now, do we really think over the next 3-12 months the economy is slightly better than the 80's or 90's. I'm not so sure. Overall, business activity is going to continue to struggle. We are facing a double dip in housing prices, Europe debt struggles, Banking profitability issues, soft consumer confidence, and weakening consumer spending.

The fact of the matter is that future earnings and the growth potential are going to be weak over the next few quarters. Thus, they should actually pay less, for a slow growth economy.

The only argument is that investors are facing a greater risk in the market, and therefore require greater returns for their money. However, this is pricing that will lead to a bubble. As investors continue to price stocks at slight higher and higher PEs. Then eventually investors will realize they have overpriced their earnings, leading to a pop of the bubble.

In summary, to say its a better point to enter the stock market than 3 months ago is not entirely true. The economy has had a considerable amount of bad news dealt to it. And, the lower PE is to be expected. Also, the higher than historical average PE mean that the market will likely be mean-regressing (return to historical averages). This will happen in two ways, either the price valuations will lower, or forward earnings will lower. In either event, there is still some downside in the pricing.

Takeaways: we are near a good entry point, be very hesitant, if the stock market begins to drop another 5% it might be a good time to throw a small to medium sized allotment at the market.

Monday, September 5, 2011

The Week Ahead - Sep 5

Last week, there weren't many stocks with upside potential. Despite the rather pessimistic outlook, I took a gamble on the news recommending Clearwire Corp. (CLWR). Monday the stock opened at $2.78 a share. After a large run-up through Thursday, CLWR took a 2% hit on Friday. However, the week would have yielded ~ 15% .

This week will be rather volatile again. One company I'm eyeing is Dendreon Corp. (DNDN) After a large 67% drop in one day, the stock continued to fall to near $9. The stock than ran up to over $13, just to retreat again to the $11 mark. I think Tuesday could be another bearish day on this stock, but I would recommend this stock around the $10.50 point.

Other than that, I would be watching the Financial Industry and be very very ultra short on this sector this week. Ever since 2008 political rhetoric and the banking industry are negatively correlated.

Also, expect some weakness in the energy commodities (oil, nat gas, heating) and the energy sector may also dip over the week.

One final recommendation, play the volatility this week. Look at picking up some of the VIX index. One ETF I like is the short-term notes, try VIIX. Expect a run up over just this week. And sell-off at some point Friday. Next week is gonna be hard for most VIX measures to maintain at current levels.

Thursday, September 1, 2011

Quick Thought 9-1

Today is the day, the beginning of the end of the Netflix business model. They've ended Starz - althought a small percentage it was a huge attracting factor for many members. They've gone through an outrageous price hike. They've failed to control costs over the past few quarters (their financials show close to 20% cost growth in recurring costs alone).

Not to mention Netflix has been highly overvalued for a long time. And, I heard on the news today that 22% of users said they are canceling their subscription.

Run away, far away from this company. It is going to collapse.