In a Wall Street Journal front page report, Starbucks CEO Howard Schultz hit the nail on the head regarding corporate profits. Coffee chain Starbucks last week warned that customer traffic in U.S. cafes began slowing in June. The softness continued in July, so the company cut its earnings guidance for the third quarter. "This is not a Starbucks issue," said Howard Schultz, chief executive. "This is a macro problem of weak consumer confidence." Corporate profits as a percent of GDP have been at unsustainable levels. You can see on my chart below that profits peaked out in the fourth quarter … [Read more...]
Archives for July 2012
Facebook Un-Liked by Wall Street
We have warned readers on this website and in our premium strategy reports, Richard C. Young’s Intelligence Report and Young Research’s Global Investment Strategy to avoid Facebook shares. After the company’s first earnings report was released yesterday, those warning were proved prescient. A Reuters report on the release by Alexei Oreskovic and Gerry Shih illustrates the drastic overvaluation that the IPO market attached to Facebook shares. Facebook Inc reported a drastic slowdown in revenue growth and failed to offer financial forecasts to quell fears about its ability to boost advertising … [Read more...]
What We’re Reading 7-27-12
Extraordinary Strains, John Hussman, Hussman Funds “The more troubling issue is that Fed papers on the effectiveness of QE focus almost singularly on the effect of QE on interest rates and risk premiums in the financial markets, with the notable absence of any analysis of the resulting effect on the real economy. This is like showing that squirting gas into an engine will make the engine run faster, without any concern for the fact that there is no transmission that connects the engine to the wheels. In a nutshell, the problem with QE is the lack of any material transmission mechanism from … [Read more...]
What’s Your Fund Manager Doing behind Your Back?
In a recent article titled Fund Managers Seduced by Facebook, Joe Light of the Wall Street Journal exposes some poor practices of actively managed mutual funds. Some of the funds that bought shares wouldn't normally be considered natural investors in a high-growth technology company like Facebook. For example, some of the demand for Facebook came from funds designed primarily to invest in dividend-paying companies or low-priced "value" stocks. Facebook is neither. If Facebook doesn’t fit the fund’s profile, why would managers invest in it? Most were probably looking to make a quick buck in … [Read more...]
Transports Signal Trouble
Our chart of the Dow Transports compared to the Dow Industrials indicates that the transports are breaking down on a relative basis. Resistance established in March and May is about to be broken through, indicating the transports are falling behind the industrials at a faster pace. Transports lead the stock market, and weakness in the economy is often telegraphed by their performance first. Continued weakness compared to the Dow Industrials would not be a good sign for the economy. … [Read more...]
Gasoline Eating in to Your Vacation?
Gas prices have ticked up each of the last two weeks. That’s too bad because many Americans will be taking their cars on vacation this time of year. Around 77% of Americans planned on taking a vacation this summer, and 56% of those Americans planned on driving to their vacation destination in the family automobile. But eating into the family fun is the price of gasoline. You can see on my chart that after trending down for 12 weeks in a row, the last two weeks have seen increases in the average price. Tensions in Iran and the continuation of loose monetary policy at the Federal Reserve are … [Read more...]
What We’re Reading 7-20-12
Oops: What Bernanke Said Five Years Ago Today, David Wessel, The Wall Street Journal The Facebook Illusion, Ross Douthat, The New York Times The 20 Worst-Performing IPOs Since 2008, Myles Meserve, Business Insider Living In The Dark: Why The U.S. Needs To Upgrade The Grid, Eric Savitz, Forbes What's Wrong With the Federal Reserve?, Allan H. Meltzer, The Wall Street Journal … [Read more...]
VIDEO: Don’t Expect the Fed to Save the Day
CNBC.com-John Mauldin, President, Millennium Wave Investments believes that QE2 was a "wasted bullet" that has decreased the significance of further easing. … [Read more...]
Your Winning Formula for Dividend Investment Success
When we started Young Research’s Retirement Compounders (RCs) in 2003, the goal was to look for a compelling competitive advantage to make the RCs a big winner, especially during bad times. Our strategy was to accept underperformance during speculative market runs, regardless of the duration, with the expected tradeoff of better performance during bad markets. Patience is always required with such a strategy. The idea was never to beat the market over time or on a consistent basis. Rather, we fully expected the low risk RCs (both price risk and business risk) to trail the major market … [Read more...]
Here’s What Your Neighbor Might Be Doing
You might be your own worst enemy when it comes to managing your money. Don’t expect good results from part-time effort—for example, if you make investment management a weekend job, or something you do in your spare time. For do-it-yourselfers, it’s the unexpected mistakes or losses that end up teaching you that you might not want to play around with your money after all. … [Read more...]