Most of you are no doubt familiar with Netflix—the leading DVD and video-streaming rental business in America. Up until recently, Netflix was a high flyer—a momentum stock. From year-end 2009 to June 2011, the shares rose over 375%—the highest return in the S&P 500. During the company’s 18-month price vault, revenue growth accelerated from 23% to 52%, and EPS growth averaged more than 57%. Those are impressive numbers for a company operating in the throes of a lackluster economy. Investors were so impressed with Netflix’s business prospects that after paying 30X earnings in December of … [Read more...]
Archives for October 2011
What We’re Reading 10-28-11
Company Insiders Selling Shares Fast, Michael Mackenzie and Telis Demos, Financial Times Error: USAJobs.gov, The Wall Street Journal Central Bankers Must Update Outdated Analytical Toolkit, Gillian Tett, Financial Times Made in America, Again, Harold L. Sirkin, Michael Zinser, and Douglas Hohner, Boston Consulting Group Waiting on Euroland, Jonathan Gregson, Global Finance … [Read more...]
Home Prices Tumble and Confidence Plunges
The commerce department released September new home sales yesterday. The number of new homes sold in September came in at an annual rate of 313,000—13,000 more than economists’ average estimate. But new home prices tumbled to a post-bubble low. The average price of a new home in the U.S. fell to $243,900 in September—the lowest price in eight years. Falling house prices along with stubbornly high unemployment, stock market volatility, and incompetence in Washington are taking a toll on consumers. In October, the Conference Board’s Consumer Confidence Index (the expectations component) … [Read more...]
Sen. Corker: Europe, The Fed & The Economy
A Country in Decline
Newport, Rhode Island, is a wonderful place to visit this time of year. The crisp air is rejuvenating. The sun reflects brilliantly off the water. And after the craziness of summer, the less crowded streets make it a great port of call. A new ship seems to be here daily—like the beautiful Queen Elizabeth 2, which visited recently. This is also a great time of year to have a business event in Newport. The other day, I was invited to be the guest speaker for a business group. Below are a few charts I discussed with them. These charts tell the story of a country in over its head, in the midst … [Read more...]
Did the Fed Just Signal QE3?
Are you ready for another round of reckless money printing from the most activist Federal Reserve in U.S. history? Last week, the doves (easy money advocates) on the Federal Open Market Committee (FOMC) started laying the groundwork for a third round of quantitative easing. Is that a tacit admission that Operation Twist, the most recent real-time experiment in monetary policy, has failed? Probably, but a majority on the Fed believe money printing stimulates the real economy, despite all of the commonsense evidence to the contrary. How do members of the Fed reach such a conclusion? … [Read more...]
What We’re Reading 10-21-11
Is There a Tea Party Investment Portfolio?, Matt Krantz, USA Today Blame the Fed for the Financial Crisis, Ron Paul, The Wall Street Journal Cain's Stimulating '9-9-9' Tax Reform, Arthur B. Laffer, The Wall Street Journal The Global Debt Clock, The Economist An Obama Teleprompter is Missing, David Jackson, USA Today The Euro Crisis: Lessons From Bear Stearns, David Skeel, The Wall Street Journal … [Read more...]
A Truly Terrifying Chart
The chart below is the spread between French and German government bonds. Equity markets have rallied on hopes that an American-styleshock and awe bailout package from France and Germany can solve the euro-area’s debt crisis, but the bond market has other ideas. The French-German spread has blown-out to the highest level since the euro’s founding. Contagion is spreading to the core of the euro-area. Investors are beginning to doubt France’s ability to fund the multi-trillion dollar bailouts needed to solve the crisis. At a 114 basis point spread over German bonds, the market is rating France … [Read more...]
3 Reasons Dividends Trump Buybacks
In September, Warren Buffett announced that the Berkshire Hathaway board authorized a multibillion-dollar share-buyback program. Berkshire shares soared as much as 12% on the news. The market’s reaction to the buyback announcement is common. When companies announce buyback plans, their stocks often get a pop. But are the gains justified? This question is more important today than it has been in years past. Over the last decade, share buybacks have become the preferred method of returning cash to shareholders. In 2006 and 2007, U.S. companies bought back more in stock than they paid in … [Read more...]
Rollover that 401k
My first job after Babson College was with Fidelity Investments. I worked at Fidelity Institutional Retirement Services Company (FIRSCO). It managed the 401(k)s of large companies. On big up or down days in the stock market, phone volume would pick up exponentially. Everyone had to help answer calls—including the CEO, to his dismay. Participants in the company plans would call up and ask about the market. Ironically, I wasn’t able to offer any advice to clients, and that’s what I do all day now. Back then, participants wanted to know what they should buy or sell. All I could do was read … [Read more...]