The KBW Bank stock index has a real troubling look. Bank stocks are rolling over. The bank index is down almost 10% from its February high. Bank of America, the fourth largest component in the index, is now trading below its pre-QE 2.0 price. Wasn’t the Fed’s money printing campaign supposed to inflate asset prices? Indeed it was ,and indeed it has, but if BofA’s price action is any indication of what is to come for the broader market, the Fed’s quantitative easing experiment has failed. And predictably so. Temporary stimulus fueled stock market rallies don’t create sustainable economic … [Read more...]
Are Investors Expecting too Much From Earnings?
Alcoa kicked off the first-quarter earnings season this week with a big thud. The aluminum producer reported strong earnings, but Alcoa shares dropped as much as 7% following the announcement. Earnings per share exceeded consensus estimates, but the top line came in below expectations. Has the two-year, 100% bull move in stocks raised investor expectations to unrealistic levels? I’m sure Jamie Dimon (the CEO of J.P. Morgan) thinks so. On Wednesday, J.P. Morgan reported first-quarter earnings of $1.28 per share compared to estimates of $1.15—that’s a huge earnings beat, but the stock is down … [Read more...]
S&P 500 Technical Analysis
The S&P 500 is at a key technical level. The bounce-back rally from the March low has failed to surpass the February 18th high. The index is forming a double top, and looks poised to break below its 50-day moving average. A close decidedly below the 50-day average could result in a more extended correction. How big of a correction? On a technical basis, there is minor support for stocks at 1,250 and again around 1,200, but I don’t see meaningful support for stocks until the S&P approaches the 1,100 level—that’s a long ways down from today’s level of 1,312. … [Read more...]
An Ominous Sign for Profits
Corporate profits hit another record last quarter. In its final revision of fourth quarter GDP, the Bureau of Economic Analysis reported the after-tax corporate profits increased to a record $1.25 trillion. Year-over-year profit growth was 13.7% in the fourth quarter and 3.3% on an annualized quarter-to-quarter basis. The corporate sector is one of the few bright spots in what has been one of the most lackluster economic recoveries on record. Corporate profits carved out an unmistakable V-shaped recovery—bottoming in the fourth quarter of 2008 and reaching a new high by the first quarter of … [Read more...]
Equity Bull or Currency Bear?
Is it an equity bull market or a currency bear market? In U.S. dollars, the S&P 500 is up an impressive 25% since August 31, 2010, but in terms of Swiss francs and gold, the S&P 500 is up only 12% and 9% respectively. Over half of the stock market rally since August can be attributed to dollar debasement. … [Read more...]
An 87% Win Rate
The bull market in stocks passed the two-year mark this week. From its low on March 9, 2009, the S&P 500 is up 100%—the fastest 100% gain since the 1930s. On a total-return basis, the S&P 500 is still 9% below its all-time high, but the index has just about recovered all of its losses since year-end 2007. How has your portfolio performed since year-end 2007? Are you back to even, or did the extreme volatility in stocks get the better of you? Having recently updated the performance data for Young Research’s Global Investment Strategy (GIS), I thought you may be interested to learn … [Read more...]
Largest Private-Equity Gains Expected in IPO
Thanks to leverage, private-equity investors Bain Capital, Kohlberg Kravis Roberts & Co., Bank of America and the brother of former Senate Majority Leader William Frist are expected to reap one of the largest gains ever from a private equity deal as they plan to take HCA Holdings Inc. public later this month. As is often the case with private-equity deals, they’ve saddled the company with debt while enriching themselves with generous dividend payments. The question now is will they be the only ones to profit or is there anything left for the buyers of the IPO? I believe this one’s dead on … [Read more...]
The Money Flood Market
In case you still thought stock prices were advancing on improving economic growth, take a gander at this puppy. The grey line is the Fed’s securities holdings. You know – all the Treasuries (and MBS) the Fed is buying from Wall Street with freshly printed money. The black line is the S&P 500. Quite a correlation wouldn’t you say? The question that savvy investors should be asking themselves is, “What happens when the Fed stops buying bonds in June?” It could be an unpleasant summer for the unprepared. … [Read more...]
HC Risk
As any seasoned investor will tell you, there are many risks in investing—volatility risk, business risk, default risk, longevity risk, and inflation risk, to name a few. This week I was reminded of another kind of risk. I call it HC risk. While reading the newswires on the Bloomberg service, I noticed the following headline: “Crystallex Plunges on Cancelled Venezuela Gold Accord.” What is HC risk? The headline probably tipped you off, but if it didn’t, HC risk is Hugo Chavez risk. Yes, Hugo deserves his own type of risk. Apparently, Hugo decided to cancel a contract with Crystallex to … [Read more...]
This Stock Is Dead on Arrival
You would be smart to avoid getting involved in the walking zombie that is HCA, Inc., if and when there’s an initial public offering (IPO). You may recall that back in 2006, Merrill Lynch, Kohlberg Kravis Roberts & Co., and Bain Capital Partners brought the enormous hospital chain private in a $33-billion leveraged buyout (LBO). It was a trophy deal at a time when the smoke of “greed is good” still permeated big Wall Street boardrooms. But this transaction symbolized the last puff, so to speak, before the LBO business and all of finance turned to ashes. The air has cleared, and Merrill … [Read more...]
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