Another week and month gone, so let’s open up the weekend open thread, where you can discuss anything you like.
I offer, for your consideration, the topic of the “rock opera”. The Who’s Tommy is considered the first great rock opera. Although I have never really liked Tommy as a whole, I did enjoy Elton John’s version of Pinball Wizard:
But Tommy was an entire album. What about rock opera songs? Admittedly, by definition, the rock opera is an entire album. However, there are two classic songs which manage to condense the rock opera into a single song with several movements.
The best is clearly Queen’s Bohemian Rhapsody:
But the runner-up is one of the most unusual (and funny) songs in rock history: Meat Loaf’s Paradise by the Dashboard Light.
That’s it for me folks. Enjoy your weekend!
PORTFOLIO UPDATE: My IRA easily topped the indexes, finishing up 0.40%.
It is hard to justify keeping Liberty Media Corporation (LMCA) in a bear market, especially with the attempted Sirius acquisition hanging over the stock price. I am eating a small loss on this sale at $132.07, but keeping it on my watchlist for the future.
The final line:
LMCA: -0.08 today, -3.12 overall to $132.07 (-0.06% today, -2.31% overall)–bought at $135.19
As part of my overall plan to liquidate some positions, I sold Caesars Entertainment Corporation (CZR) today at $21.97. The stock will remain on my watchlist for acquisition later.
The final line:
CZR: +0.52 today, +0.02 overall to $21.97 (+2.42% today, +0.09% overall)–bought at $21.95
The bears might have taken a nap yesterday, but don’t expect it to last. I will go out on a limb and say we are seeing the start of a cyclical bear market. I say this based on the first rule of investing: “Don’t fight the Fed.” With the Fed tapering QE, that means less liquidity flowing into markets. We have already seen the reaction from emerging markets, and it is only a matter of time before that impact reaches American shores.
I will also predict when this cyclical bear market will end: This summer, roughly between June and August. It will happen as soon as the U.S. economy starts to show weakness in response to the QE tapering. Whether it is a little weakness, or the economy comes to a screeching halt, remains to be seen. But I expect the Fed will reverse course, and the markets will react appropriately.
My macro strategy for this:
1. As far as the long-term holdings in my 401k, I plan no changes. They are all dividend stocks (except Google, which I plan to hold anyway), so I have no reason to sell them.
2. For my shorter-term IRA, I plan to liquidate most of it, with the exception of my biotech stocks, GWPH and NNVC. While biotech can be impacted by a bear market, they also tend to be more responsive to company-specific news, even on down market days. Selling now would defeat the purpose of owning a biotech stock in the first place.
As for today, S&P 500 futures are down right now, so it looks like the bears will open the market today. With the technicals looking neutral, don’t be surprised by a down day.
The S&P 500 levels to watch today:
UPSIDE: 1795 (January 27th’s high), 1798 (January 30th’s high), 1812 (50 day moving average), 1815 (January 13th’s low), 1820-1821 (2 data points), 1823 (January 6th’s low), 1824 (20 day moving average), 1826-1832 (8 data points), 1835 (January 17th’s low), 1837-1840 (7 data points), 1843-1847 (7 data points), 1849-1850 (January 21st’s high, December’s high and the all-time high), and 1870 (top of the Bollinger Bands). LAST CLOSE: 1794. DOWNSIDE: 1793 (January 28th’s high), 1790 (2 data points), 1779 (January 28th’s low), 1778 (bottom of the Bollinger Bands), 1777 (January 30th’s low), 1775 (October’s high), 1772 (January 27th’s low), 1770 (January 29th’s low), 1767 (December’s low), 1746 (November’s low), 1729 (September’s high), 1709 (August’s high), and 1705 (200 day moving average).
Google Inc. (GOOG) posted fourth-quarter sales that topped estimates as retailers spent more on advertising during the holidays, making up for lower ad prices.
Revenue, excluding sales passed on to partners, rose 11 percent to $13.6 billion, while profit excluding certain items was $12.01 a share, the company said in a statement yesterday. Analysts on average had projected sales of $13.4 billion and profit of $12.25, according to estimates compiled by Bloomberg.
Even though Google missed on the bottom line, you have to weigh that against increased revenue (which beat estimates), as well as the fact Google is selling Motorola, which weighed on their bottom line. In that light, it was a good earnings report.
Bad news for Amazon shareholders, as well as customers:
Amazon.com posted quarterly results Thursday that fell short of expectations and handed in a weak revenue outlook.
Additionally, Amazon said during its conference call it may increase the cost of its popular Amazon Prime subscription by $20 to $40 due to higher fuel and other shipping costs.
…In December, Amazon said that its Prime service had a “record-setting holiday season.” According to the company, more than 1 million people signed up in the third week of December alone. Prime members get free two-day shipping on eligible items, free streaming of 150,000-plus movies and TV episodes, and free e-book borrowing from a library of more than 475,000 titles.
The world’s largest Internet retailer posted earnings of 51 cents a share on sales of $25.59 billion, versus expectations for 66 cents a share on sales of $26.06 billion, according to a consensus estimate from Thomson Reuters.
In addition, the company posted current-quarter sales guidance of between $18.2 billion and $19.9 billion, missing expectations for $19.67 billion.
The company said international sales gained just 13 percent, lower than Wall Street forecasts for around 14 percent to 15 percent.
An across-the-board miss, combined with lower guidance, is a recipe for share price disaster. Maybe now Amazon will get a reasonable valuation? Do you think their previous trailing P/E of 1,460 and PEG ratio above 4 were a tad optimistic?
That said, I will add AMZN to my watchlist now. It is still a good company, just absurdly overpriced.
Microsoft Corp. (MSFT)’s board is preparing to make Satya Nadella, the company’s enterprise and cloud chief, chief executive officer and is discussing replacing Bill Gates as chairman, according to people with knowledge of the process.
One person the board is considering to take the place of co-founder Gates as chairman is Microsoft lead independent director John Thompson, said the people, who asked not to be identified because the process is private. Even if Gates steps down as chairman, he may be more involved in the company, said two people familiar with the matter, particularly in areas like product development.
…Microsoft has only had two CEOs — Gates and Ballmer — in its history. In turning to Nadella, the company would get an enterprise-technology veteran who joined Microsoft in 1992 and has had leadership roles in cloud services, server software, Internet search and business applications.
As president of Microsoft’s server business, Nadella boosted revenue to $20.3 billion in the fiscal year through June, up from $16.6 billion when he took over in 2011. That unit became cloud and enterprise when Ballmer overhauled Microsoft’s structure in July to focus the company on devices and services.
I can’t say I know enough about Nadella to say whether he will or won’t be a good CEO. As a shareholder, I will take a “wait and see” approach.
However, I like the choice of John Thompson as the new chairman of the board:
If Thompson, 64, takes over as chairman, Microsoft would have a more than 40-year technology executive in the role. Thompson was a longtime International Business Machines Corp. executive before joining technology-security company Symantec Corp. (SYMC) in 1999. He took the company from $600 million to $6 billion in sales over a decade-long tenure, before stepping down in 2009. Thompson currently runs Virtual Instruments Inc., a San Jose, California-based maker of software that tracks application and hardware performance.
Thompson joined Microsoft’s board in 2012 and has asked tough questions of top executives including Ballmer, people familiar with the situation have said. That helped to create an environment that sped Ballmer’s decision to retire by this August, the people have said.
I would rate MSFT as a “hold” right now. For people looking for a safe dividend-paying stock for a retirement portfolio, I would rate MSFT as one of the best.
The government has pulled the plug on an 11-year-old Illinois baker’s oven.
A day after a local newspaper ran a story about the young and ambitious Chloe Stirling, who operated a cupcake business out of her parents’ kitchen, the local health department came calling.
“They called and said they were shutting us down,” Heather Stirling, Chloe’s mother, told the St. Louis Post-Dispatch.
Read the entire article. But the money quote is from the government bureaucrat:
When reporters approached Amy Yeager, a health department spokeswoman, about the county’s decision to shut down Chloe’s business, she said that she was doing it for the sake of the public.
“The rules are the rules. It’s for the protection of the public health,” Yeager said, according to the Post-Dispatch. “The guidelines apply to everyone.”
“People will react how they choose to react,” she added. “But it is our job.”
So Amy Yeager, your job is to ruin the aspirations of a young girl? God forbid 11 year old Chloe Stirling should show an inkling of self-motivation and entrepreneurial skill, instead of goose-stepping in line like we expect everyone to do.
Amy, if you want to know why I generally question the effectiveness of ANY government-run programs, it is mindless and soul-less bureaucrats such as yourself. I pray there is a special place in Hell for people like you, right alongside Nazi soldiers who ran concentration camps.
The markets have made it clear they don’t like the Fed’s taper. However, yesterday’s drop brings us a lot closer to extreme oversold conditions. But we aren’t there yet, so the bears still rule the markets, although S&P 500 futures are up slightly this morning.
The S&P 500 levels to watch today:
UPSIDE: 1775 (October’s high), 1779 (January 28th’s low), 1781 (bottom of the Bollinger Bands), 1790 (2 data points), 1793 (January 28th’s high), 1795 (January 27th’s high), 1812 (50 day moving average), 1815 (January 13th’s low), 1820-1821 (2 data points), 1823 (January 6th’s low), 1826-1832 (8 data points and the 20 day moving average), 1835 (January 17th’s low), 1837-1840 (7 data points), 1843-1847 (7 data points), 1849-1850 (January 21st’s high, December’s high and the all-time high), and 1872 (top of the Bollinger Bands). LAST CLOSE: 1774. DOWNSIDE: 1772 (January 27th’s low), 1770 (January 29th’s low), 1767 (December’s low), 1746 (November’s low), 1729 (September’s high), 1709 (August’s high), and 1704 (200 day moving average).
The Federal Open Market Committee said yesterday it will cut monthly bond purchases by $10 billion to $65 billion, citing labor-market indicators that “were mixed but on balance showed further improvement” and economic growth that has “picked up in recent quarters.”
It was the first meeting without a dissent since June 2011, showing the tapering strategy has brought together policy makers concerned the Fed’s record $4.1 trillion balance sheet risks causing asset price bubbles with those who, like Vice Chairman Yellen, say more needs to be done to reduce unemployment.
My prediction: They will reverse course before they reach the end of tapering. Keep in mind that it will take about 6 months for the effects of tapering to be seen in the economy, roughly around May-June. July’s economic reports should show enough of a negative effect for the Fed to reverse course.
The economy probably expanded at a 3.2 percent annualized rate in the fourth quarter as U.S. consumer spending climbed the most in three years, according to the median forecast of 87 economists surveyed by Bloomberg.
The projected gain in gross domestic product, the value of all goods and services produced, would follow a 4.1 percent advance, completing the strongest six months in almost two years, Household purchases, which account for almost 70 percent of the economy, may have increased 3.7 percent.
The pickup in spending allowed the economy to overcome cutbacks in government outlays caused by the partial federal shutdown in October. Diminishing fiscal challenges and progress in the labor market will probably sustain consumer and corporate demand in 2014, helping explain why the Federal Reserve decided yesterday to keep paring stimulus.
What is odd is that such a strong report should be reflected in the 4th quarter earnings, but too many earnings reports have disappointed so far. I wouldn’t be surprised to see a disappointing GDP number, although I am sure it isn’t too big of a disappointment, or else the Fed wouldn’t have continued their tapering.
A Chinese manufacturing gauge signaled the first contraction in six months in January as companies cut jobs and credit-market stresses damped confidence in the world’s second-biggest economy.
A Purchasing Managers’ Index fell to 49.5 from 50.5 in December, HSBC Holdings Plc and Markit Economics said in a statement today. The reading compared with the median 49.6 estimate in a Bloomberg News survey of 14 economists. A number below 50 indicates contraction.
Is China entering a recession? A PMI number below 50 is a first step towards recession. Avoid Chinese stocks for now.
Banco Santander SA (SAN), Spain’s biggest bank, said fourth-quarter profit more than doubled as it made fewer provisions for bad loans and income increased in the U.K.
Net income rose to 1.06 billion euros ($1.44 billion) from 423 million euros a year earlier, the Santander, Spain-based bank said in a filing to regulators today. That compared with the 1.2 billion-euro average estimate in a Bloomberg survey of 16 analysts. Loan-loss provisions were 2.28 billion euros in the final three months of 2013, the lowest in eight quarters.
…Earnings from Brazil, the biggest contributor to Santander’s profit, fell 28 percent from a year ago to 1.58 billion euros for the full year. Net interest income fell 21 percent from the year earlier to 10.1 billion euros. Fourth-quarter profit fell to 301 million euros from 518 million euros a year earlier.
…Profit from Spain fell 45 percent for the full year to 478 million euros as lending shrank 11 percent and net interest income fell 15 percent. Net interest income rose 3.2 percent in the quarter to 1.1 billion euros. Spain’s economy, which has suffered two recessions since 2008, expanded 0.3 percent in the fourth quarter, data showed today.
…Santander said bad loans as a proportion of total lending at its Spanish banking business rose to 7.49 percent from 6.4 percent in the third quarter.
On the bright side:
In the U.K, quarterly earnings rose to 357 million euros from 256 million euros a year earlier, as net interest income rose to 962 million euros from 796 million euros. Current account balances grew by 75 percent, the bank said.
…On a group level, bad loans as a proportion of total lending rose to 5.64 percent from 5.43 percent in the third quarter. Net loans newly classified as in default reached 3.8 billion euros, down from 4.1 billion euros in the third quarter.
Santander’s core capital under Basel II criteria, a measure of financial strength, rose to 11.71 percent from 11.56 percent in September, the bank said.
I would rate Santander as a “hold” based on this news. I only have a small position in my 401k, so I could add to it if it drops more. But my main reason for holding it is the dividend, and I don’t see anything threatening that.
Lenovo Group Ltd. (992) agreed to buy Google Inc. (GOOG)’s Motorola Mobility phone unit for $2.91 billion, as the world’s largest personal-computer maker continues a buying spree of U.S. technology businesses. Lenovo fell 8 percent.
The sale includes $1.41 billion in cash and Lenovo stock paid at the close of the deal, with $1.5 billion to be paid in a three-year promissory note, Google said in a statement yesterday. Google will retain a majority of Motorola Mobility’s patent portfolio, with Lenovo receiving a license to the intellectual property.
That last part is key. Without it, Google and their hardware partners would be at Apple’s mercy in the courtrooms. With the patents, it forces Apple to think twice before filing lawsuits. We can argue all day as to what the patents are actually worth, but there is an indirect value which Google’s patents bring to the table with them.
On top of this, by getting rid of Motorola, Google gives their hardware partners a bit more confidence in the Android system. It is a win-win for Google and their hardware partners.
All in all, I think the Motorola deal was good for Google based on what they did with it. And I still rate it a long-term “buy”.
Even with my bad UPRO play, I managed to lose less than the indexes. I know, it isn’t much to brag about, but on a bad day like today, you take what you can get:
BID: 0.46 to $48.75 ( 0.95% , 0.95% overall)–bought at $48.29
CZR: -0.20 to $20.95 ( -0.95% , -4.56% overall)–bought at $21.95
GNW: -0.34 to $14.87 ( -2.24% , 58.70% overall)–bought at $9.37
GWPH: 1.14 to $51.53 ( 2.26% , 56.39% overall)–bought at $32.95
LMCA: -1.48 to $133.02 ( -1.10% , -1.61% overall)–bought at $135.19
NNVC: -0.24 to $4.59 ( -4.97% , 80.71% overall)–bought at $2.54
SIRI: -0.04 to $3.59 ( -1.10% , -2.18% overall)–bought at $3.67
One of the stocks I have been watching lately has been Sotheby’s (BID). Today, they announced a special dividend of $4.34 to be paid in March. At a price of $48.29, which is the price I paid for it today, that is an 8.99% return for holding it until the record date of February 12th. While I like Sotheby’s prospects in a “rich get richer” world, that special dividend was just too much for me to resist.
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