Earlier this week the WSJ ran with a headline asking if Value Investors face an existential crisis. See here. The NY Times also featured a piece on the difficulties of value investing. Below are some of the highlights. Think value investors have it tough these days? Just ask William J. Nasgovitz, portfolio manager of the Heartland Value fund, whose own mother recently tried to pull her money out of the fund. “My mom wanted to buy Walgreen at 50 times earnings and sell out of the value fund after making six times her money,'' Mr. Nasgovitz said. ''It's a great company, but it isn't worth 50 … [Read more...]
Sentiment on Junk Bonds Nearing Mania Threshold
Only two times before has the ratio of junk bond yields to high-grade bond yields been lower than it is now. Those two instances preceded the Asian market crisis, and the global financial crisis. Bloomberg's Sid Verma and Cecile Gutscher report: According to a key valuation metric, investors are headed for the kind of bullishness on high-yield bonds that’s been seen just twice before: during the halcyon days of 1997’s tech bubble before the Asia crash, and on the eve of the global financial crisis a decade later. The ratio between U.S. junk-bond yields and their high-grade counterparts has … [Read more...]
Is Netflix a Bubble?
Great piece by Tara Lachapelle at Bloomberg on Netflix vs. Disney. Netflix market value has now surpassed Disney’s market value. Yup, as Lachapelle puts it, An 11-year-old app that charges $11 a month is worth more to investors than the legacy conglomerates that earn billions more from TV advertising, box-office hits and cable and internet packages. The Bloomberg article goes on to point out the conundrum in today’s market. This is a broader trend that isn’t just limited to Netflix. You see it with Amazon and its competitors. Firms that try to engage in the profit sucking, market-share … [Read more...]
Do You Invest Like the Tortoise or the Hare?
You know how this story ends, but the truth is both approaches can work over the long-run, so long as you have the patience and tenacity to stay the course. In the chart below, we compare the 30-year performance of Young Research’s Cyclical and Defensive Indices. Think of these as proxies for the tortoise and hare approach to investing. The Young Research Cyclical Portfolio is a modified market capitalization weighted index of the technology, industrial, energy, materials, financial and consumer discretionary sectors. These are the sectors that tend to fluctuate most with the business … [Read more...]
The Cool Kids are Not on Facebook
Not so long ago many 12 year-olds anticipated their thirteenth birthday not only for the celebration, but for their new ability to join the world's largest social network, Facebook. It was a rite of passage. Now it seems, kids aren't as interested in joining Facebook. Instead they prefer Instagram, Snapchat and most of all YouTube. A Pew Research poll found that the share of teens who say they use Facebook has fallen to 51%, with only 10% saying they use the platform regularly. In contrast, 85% use YouTube, with 72% and 69% using Instagram and Snapchat respectively. The report is more … [Read more...]
Can Amazon Help Revive Branded Consumer Products Companies?
If you are a regular Amazon user you may have noticed the ads that have started to show up at the top of every search you do on the company’s web page. Or maybe you haven’t. They don’t look much different than organic search results. As the FT reports, advertising is becoming a big business for Amazon. In the last quarter the company generated close to $2 billion from advertising. Advertising is a huge potential market for Amazon, and one where margins are orders of magnitude higher than on the pure sale of retail products. Amazon is of course well within its right to offer up ads on its … [Read more...]
Can Consumers’ Fire be Sustained?
After three months of falling retail sales, there are warning signs showing in the market for consumer discretionary goods. Consumer confidence is still high, but if it begins to tail off, it could spell trouble for a sector that has been powering the economy. Keris Lahiff reports for CNBC: Consumer spending has already shown the beginnings of a slowdown. Retail sales in February fell for a third month in a row, a surprise to economists looking for a slight gain and its longest stretch of declines since 2012. Fourth-quarter sales were at their strongest in seven years. "The consumer is far … [Read more...]
Euro Crisis Flares up Again
The populist backlash across the euro-area is gathering momentum. Italy is headed for elections that may give populist parties more power and there is a no-confidence vote planned in Spain. The FT reports that the Bank of Italy has warned the Italian government that it may be losing the trust of markets. The governor of the Bank of Italy has warned that the country was “a few short steps away” from losing the “asset of trust”, a rare intervention by the central bank into a political crisis that underlined the risk Rome faces as it stumbles to new elections. Ignazio Visco said any new … [Read more...]
Goldman Warns on Junk Bonds
Goldman Sachs is warning that the lower rated rungs of the junk bond universe are the most overpriced since 2007. Bonds rated CCC and below have one of the highest probabilities of default. Goldman estimates the credit-risk premium for CCC obligations has sunk to a negative 53 basis points, "even under a fairly optimistic assumption of no recession for the next five years." That’s the lowest level since before the financial crisis, when the CRP touched negative 420 basis points in June 2007, at the height of the froth in the global debt market. It suggests investors are likely accepting … [Read more...]
America Records Fastest Home Price Inflation Since 2006
Despite the Federal Reserve's intimation that a bit of inflation is just fine, Americans are being hammered with home price inflation at the fastest rates since the housing bubble in 2006. In April, home prices increased by 8.7%, the fastest rate since June 2006 which saw a 9% rise. Alexandre Tanzi reports at Bloomberg: San Jose home values appreciated 26 percent year-over-year. Las Vegas, Seattle, Dallas-Fort Worth, San Francisco, Tampa, Atlanta, Charlotte and Orlando all saw double digit growth. “The spring home shopping season has been a perfect storm of strong demand and tight supply,” … [Read more...]
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