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Mid-Week Update 08-25-10

In your upcoming September issue of The Complete Investor, our Growth article highlights some of our well-performing tech stocks. Despite the weak domestic economy, our franchises have bucked the trend – outperforming their own, and Wall Street’s, profit and sales expectations. Among others, we highlight Intel (INTC), the largest semiconductor company in the world, in regards to its stellar earnings report for the second quarter, as well as its desires to make a bigger splash in the mobile chip market with a proposed acquisition. After the issue went to print, however, Intel surprised the market with a different major acquisition.

Last Thursday, Intel announced its largest acquisition ever with the $7.68 billion purchase of security software maker, McAfee. Both boards unanimously approved the deal which will provide McAfee shareholders with $48 a share in cash – a 60 percent premium over the stock’s previous closing price. At first glance, the move seemed curious with a dominant hardware company making an expensive foray into software. The multiple, at 3.3 times revenue, is high relative to the average premium paid for internet security acquisitions. According to Bloomberg data, there have been 171 acquisitions in the internet security business over the last five years – the median sales multiple was 2.07. Of course, Intel could easily afford it with roughly $18 billion in its cash coffers.

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Market Update 08-24-10

Like an out-of-shape Alpine climber who refuses to admit he’s not up to the task, the stock market continues to struggle to find some sort of foothold after an arduous ascent. During last week’s leg of the journey it lost some ground—not much, but after the prior week’s decline, it should have made at least a bit of progress. Since then, the prospect for falling rocks (we don’t see a landslide as just) has increased.

Yesterday we watched as the stock market surrendered more of its hard-fought earlier gains. On the surface things don’t seem so bad, but delve a little deeper and you’ll find fissures that could be an indication of what could prove to be a perilous outcome. While a number of sectors ended Monday in the green, with utilities, energy, consumer staples and health care the big winners, other groups painted the tape red. Overall, blue chips were somewhat negative, whereas the small caps lost 0.6 to 1.3 percent, depending on the average you scrutinize. And in what has become an all-too-familiar refrain, volume was anemic with only 865 million shares trading hands on the Big Board today, making it the fourth-lightest day of the year.

While we expect trading to slow in the summer months, yesterday’s volume was a full 27 percent below its 200-day moving average, and it’s off by a similar percentage compared to levels that prevailed a year ago.

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Making Sense Of Contradictory Indicators 08-23-10

Short-Term Key: Neutral Long-Term Key: -8 (Neutral)

It's no wonder many people find themselves confused about the economy. Two of the most reliable economic indicators we know are currently giving contradictory readings. Yet that discord offers us an important insight into where the opportunities for profit lie.

The first of these indicators is the Commodity Research Bureau’s Raw Industrials Index, which is composed of a dozen or so basic commodities, not including oil. None of these commodities are traded on futures exchanges, but simply sold by producers to manufacturers. Because of that, their prices are not influenced by speculators.

An uptrend in the Raw Industrials Index can indicate either growing strength in the economy (which creates higher demand for materials) or inflation (resulting from a weaker dollar or tightening commodity supplies).

Currently, the Raw Industrials Index stands near 500, just 5% below its all-time high, which was set in early 2008, and very close to its peak set earlier this year.

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Market Update 08-17-10

It was only a matter of time, but China has now officially overtaken Japan as the second-largest economy in the world. According to government statistics, China’s GDP totaled $1.33 trillion in the second quarter, slightly ahead of Japan’s $1.28 trillion output. Given China’s growth momentum and Japan’s own sluggish economic recovery, it appears almost certain that for the full year China’s economy will be larger.

This is only the latest milestone for China, as it has already surpassed the U.S. as the world’s largest energy consumer and the biggest car market, and Germany as the largest exporter. Although its economy is still only a fraction of the U.S. economy, China could surpass the U.S. as number one as soon as 2030. Despite prodigious growth in the last few decades, large parts of the country still remain woefully underdeveloped and per-capita income is still less than one-tenth of that of the U.S., still leaving plenty of room for urbanization and growth.

With its growth, however, China will put an increasingly large strain on the world’s resources. Not blessed with rich natural resources but flush with cash, the Chinese have been on a rampage to secure resource assets around the world via acquisitions through its state-owned companies.

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Staying safe in a dangerous world 08-16-10

Short-Term Key: Neutral Long-Term Key: -13 (Neutral)Read more...

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Mid-Week Update 08-11-10

With each economic release, our fears about the strength of the recovery seem to be confirmed. With more than two thirds of the economy stemming from the consumer, the ongoing weakness likely begins and ends with labor market. Last Friday’s report for July was uninspiring, to say the least.

The private sector added 71,000 jobs last month, not enough to even keep pace with population growth – while job losses in total were 131,000 (mostly due to the end of 143,000 temporary census jobs). The private payroll figure was below consensus expectations of 90,000 and far off the pace of the nearly 200,000 jobs gained in March and April. To make matters worse, June’s numbers were revised sharply downward as well, further highlighting the labor market weakness.

The unemployment rate held steady at 9.5 percent, but that does not reflect those that have given up looking or have taken on part-time jobs rather than continued to seek full-time employment.Read more...

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4 stocks to buy until our mojo returns? 08-10-10

If America wants to retain its position in the world, it needs to get its mojo back. We're not quite certain when we lost it, but we suspect it happened sometime after the fictional character Gordon Gekko proclaimed, “Greed is good,” in the 1987 film Wall Street. Michael Douglas, who starred in the role, may have intended to portray the dangers of unrestrained greed, but his speech became instead a rallying cry for a generation of Wall Street manipulators (if not outright fraudsters) who caused numerous financial disasters including Enron, the subprime mortgage affair, and the 2008 recession.

The past 10 years should have taught America an important lesson: greed is not always good.

Of course, we are all in favor of individuals making an honest profit. But unrestrained greed does not correlate with growth. And if a handful of insiders pursue profit so aggressively that they derail the nation's economy, standards of living, availability of good jobs for those who want them, the ability to look after our interests on the world stage, etc.

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How to profit from Chinese consumers

Short-Term Key: Neutral Long-Term Key: -21 (Neutral)Read more...

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If only this time were different: Market Update 07-06-10

Short-Term Key: Neutral Long-Term Key: -11 (Neutral)

The financial news seems like a mad roller coaster ride at the moment. Expert opinion seems to flip-flop on a daily basis from optimistic to pessimistic and back again. All the data seems contradictory.

In fact, the only consensus threatening to emerge (but still lurking in the shadows) is that resource supplies are growing tight. It's the one factor that seems to make sense of everything else.

For example, last night Bloomberg ran this headline: “Copper Shortage Looms in 2011 for Macquarie as Freeport Sees Supply Limits.” The article quotes not just analysts but major copper mining outfits like Codelco and Freeport who claim that too few high-grade copper discoveries have been made in recent years, so they are forced to mine deposits that are either lower grade or deeper and more expensive.

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Mid-Week Update: 06-30-10

There were many events contributing to yesterday’s sell-off, and the most likely culprits around the globe included more protests in Greece, continued to concerns about Europe at large, and a downward revision (due to a calculation error) of a leading economic indicator reading in China for the month of April. But when it comes down to it, our own economy has yet to stand on solid ground.

While the recovery has continued to be shaky at best, recent economic readings may be pointing to a double dip recession. Yesterday’s batch of economic data seemed to be confirming that, as it brought a very dismal reading on consumer confidence. June’s number stood at 52.9, far below expectations of 62.5, and pointing to the consumers’ weariness about the job market, and economic recovery in general. To go further, the previous reading for May was revised downward, to 62.7 from 63.3. But the drop from May to June really sends the message home: we’re not out of the woods yet. Earlier in the week, we saw personal savings rates rise again, even while personal income growth was meager. Americans, despite bringing home a little more cash, continued to save more for the expected rainy days, and have yet to return to their spendthrift ways.

After yesterday’s precipitous selling, one would expect to see a bit of a bounce in today’s trading session.

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energy

Mid-Week Update 08-25-10

Market Update 08-24-10

Making Sense Of Contradictory Indicators 08-23-10

Market Update 08-17-10

Staying safe in a dangerous world 08-16-10

Mid-Week Update 08-11-10

4 stocks to buy until our mojo returns? 08-10-10

How to profit from Chinese consumers

If only this time were different: Market Update 07-06-10

Mid-Week Update: 06-30-10

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