• Google Buys Motorola Mobility
    Posted by on August 15th, 2011 at 9:54 am

    When Motorola finally split itself into two separate companies, I said that Motorola Solutions ($MSI) was by far the smarter buy. I had been right up until today. Now Google ($GOOG) announced that it’s buying Motorola Mobility($MMI) for $12.5 billion.

    The deal, which comes just eight months after the split of Motorola Inc., would give Google control of Motorola Mobility’s attractive patent portfolio after the Internet giant recently missed out on a bid for Nortel Networks Corp.’s (NRTLQ) portfolio. Google, which owns the fast-growing Android operating system used in millions of mobile phones, has a thin portfolio of wireless and telecommunications patents.

    Google’s buyout price works out to $40 per share. On Friday, MMI closed at $24.47 so Google is offering a 63% premium. I have to wonder if Google is making the smart move here. Wall Street thinks MMI will earn $1.39 per share next year, so Google is paying 20.8 times that. If the S&P 500 were valued similarly, the index would be over 2,300.

    Activist investor Carl Icahn, who is the company’s largest shareholder, had urged Motorola Mobility to explore options for its patent portfolio in the wake of the Nortel deal that attracted multiple bidders.

    Following that defeat, Google had preliminary discussions with InterDigital Inc. (IDCC) about a possible acquisition of the wireless technology developer and licenser.

    The smartphone and set-top box company split with its sister Motorola Solutions Inc. (MSI), which is focused on business and networking operations, at the beginning of the year. The separation made Motorola Mobility nimbler and more focused on its core operations, but it faces a highly competitive smartphone market, including a persistent threat from Apple Inc.’s (AAPL) iPhone.

    Last month, Motorola reported a 28% rise in second-quarter revenue, thanks to strong tablet sales, but the device maker provided weak guidance for the current quarter because of delays in launching speedier 4G devices.

    Meanwhile, Google’s second-quarter earnings rose 36% on record revenue as the Internet giant experienced strength in its core search business and gained traction with its newer operations.

  • Morning News: August 15, 2011
    Posted by on August 15th, 2011 at 6:35 am

    Setbacks May Push Europe Into a New Downturn

    Japan’s Economy Shrinks but Beats Expectations

    Euro Zone Bond Debate Raises Pressure on Merkel

    Middle East Oil Near Highest in a Week as Gasoil Profits Rebound

    Sterling No Refuge as Bank of England Governor King Eyes Stimulus

    Low Rates May Do Little to Entice Nervous Consumers

    Ralcorp Rejects ConAgra’s Sweetened $5.2 Billion Bid

    Time Warner Cable Said to Be Near $3 Billion Insight Deal

    Transocean Announces $2.23 Bln Takeover Of Aker Drilling

    Bright Nears Deal for 75% Stake in Manassen

    Nestle Takeover in China Creates 23% Return

    Israel’s Sewage-Eating Bacteria Lure GE Cash

    Saab Customers Abandon Automaker as Swedes Fret

    20 Valeurs Pour Battre Le Marché

    Paul Kedrosky: Warren Buffett: Stop Coddling the Super-Rich

    James Altucher: Nine Ways To Light Your Creativity ON FIRE

    Epicurean Dealmaker: Investment Banks of the Plain

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  • The Carter Family: “Can the Circle Be Unbroken”
    Posted by on August 12th, 2011 at 8:38 pm

  • Consumer Confidence Plunges
    Posted by on August 12th, 2011 at 12:36 pm

    It’s been a long time since consumer confidence was this low. Let’s just say that you probably had an alligator on your shirt back then.

    Confidence among U.S. consumers plunged in August to the lowest level since May 1980, adding to concern that weak employment gains and volatility in the stock market will prompt households to retrench.

    The Thomson Reuters/University of Michigan preliminary index of consumer sentiment slumped to 54.9 from 63.7 the prior month. The gauge was projected to decline to 62, according to the median forecast in a Bloomberg News survey.

    The biggest one-week slump in stocks since 2008 and the threat of default on the nation’s debt may have exacerbated consumers’ concerns as unemployment hovers above 9 percent and companies are hesitant to hire. Rising pessimism poses a risk household spending will cool further, hindering a recovery that Federal Reserve policy makers said this week was already advancing “considerably slower” than projected.

  • CWS Market Review – August 12, 2011
    Posted by on August 12th, 2011 at 11:25 am

    As dramatic as the markets were last week, things got even more frenetic this week. Over the past four days, the Dow closed down 634, up 429, down 519 and up 423. On Thursday, the S&P 500 closed at almost exactly the same level it closed at two days before. It’s like watching some crazy football play where the running back scampers all over the field only to wind up back at the line of scrimmage.

    In this week’s issue of CWS Market Review, I want to break down what’s happening and why, but I also want to tell investors what’s the best strategy to do with their money. The silver lining in all this crazy volatility is that there are some impressive bargains right now on our Buy List.

    The big story of this past week, outside the down/up/down/up market, was Tuesday’s Fed meeting. Over the past several months, these FOMC meetings have been snoozefests. After all, what can you do when interest rates are already at 0%? This time, however, the Fed actually made some news.

    In the post-meeting policy statement, they added important new language:

    The Committee currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

    Bear in mind that central bankers are bred to speak in understated tones, so this statement is a pretty big deal. What Bernanke & Co. are saying is that the economy and inflation will be soft for at least two more years (which includes Election Day, by the way). Many folks in the market had suspected this was the case, but this is the first time we’ve heard the news right from Big Ben himself.

    What’s happening is that S&P’s downgrade of our debt, while a bit silly in my opinion, is having major repercussions, though interestingly, not on the market for our debt. The S&P downgrade took the idea of further fiscal stimulus off the table. In other words, don’t expect Congress to act. More stimulus spending takes political will and that simply no longer exists.

    Without the possibility of fiscal stimulus, all responsibility is placed on monetary policy—meaning the Federal Reserve. As a result we’ve been experiencing this odd combination of soaring Treasuries and soaring gold combined with weak and highly volatile stocks. Everyone is running for cover. Gold is soaring because it acts as a hedge against real short-term interest rates. As long as short-term rates are running below inflation, gold is poised to do well. It’s as if Bernanke gave commodity investors the green light—or perhaps the gold light.

    What also made this past Fed meeting interesting is that there were three dissensions to the Fed policy statement. The Fed isn’t like the Supreme Court. They work very hard to get the effect of the broad consensus. If someone disagreed, then they really didn’t like the policy. The vote for the last policy statement was 7-3. There are currently two vacancies but we do have to wonder if it’s possible for Bernanke to be overruled at some point by the inflation hawks. That hasn’t happened to a Fed chair in 25 years.

    What’s really stood out in my mind is the dramatic volatility of the past few days. I have a slightly different view of volatility than you often hear in the financial media. Volatility isn’t necessarily bad for the market. I think periods of high volatility reflect the violent clashing of multiple views on what’s driving the market. It’s as if two schools of thought are fighting for supremacy.

    The bone-on contention is what shape the economy is in right now. Some investors think we’re headed right back for another recession. Personally, I think it’s too early to say. However, I do believe that it’s best for investors to lighten up on their economically-sensitive stocks. I also think we’ll see this crazy volatility begin to fade once traders get back from the beach after Labor Day.

    Many financial stocks have come in for an especially severe pounding this month, but I think that’s become overdone, especially for the high-quality ones. In the CWS Market Review from four weeks ago, I said that I was “particularly leery” of financials like Citigroup ($C), Bank of America ($BAC) and Morgan Stanley ($MS). Since then, those three banks have fallen 22%, 28% and 14% respectively. As bad as they are, every stock has a price.

    On our Buy List, I think financials like JPMorgan Chase ($JPM) and AFLAC ($AFL) are very good buys. Not only is Nicholas Financial ($NICK) a great buy but I think the recent Fed news actually helps them since short-term rates will continue to be very low for some time. NICK makes their money on the spread between short-term rates and what they lend out to their customers.

    For investors, the important lesson is that when times get difficult, you always want to look at dividends. Accountants can do crazy things with a balance sheet, but dividends tend to be very stable. Even during the past recession, once you discount the financial sector, most dividends hung in there. That’s why I want to highlight some of the top yielders on the Buy List.

    Abbott Labs ($ABT), for example, is now yielding 3.7%. Even Johnson & Johnson ($JNJ) is yielding close to 3.5%. AFLAC ($AFL) is over 3% and Medtronic ($MDT) isn’t far behind. Tiny Deluxe ($DLX) saw its yield come close to 5%. Most of these companies can easily cover their dividends, and a few have paid rising dividends for decades.

    On Monday, Sysco ($SYY) will be our final earnings report of the second quarter. From what I see, the company is in pretty good shape. Wall Street expects earnings of 57 cents per share which is exactly what SYY earned a year ago. I think that’s a bit low. My numbers say that Sysco earned 60 cents per share, plus or minus two cents.

    I think it’s interesting that the recent market pullback has impacted a non-cyclical stock like Sysco far less dramatically than it has the rest of the market. Even in this market, Sysco currently yields 3.6% which is a very good deal. The company has increased its dividend for the past 41-straight years and I think they’ll make it 42-straight in November, although it will probably be a one-cent increase. Still, that’s not bad in an environment where a 10-year Treasury goes for just over 2%.

    That’s all for now. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

  • Morning News: August 12, 2011
    Posted by on August 12th, 2011 at 6:55 am

    Surging Yuan May Signal Boost For Global Recovery

    Short-selling Ban Spurs Tentative Recovery

    French Economy Stalls With Decline in Consumer Spending as Exports Dwindle

    Italy Cabinet to Meet on Austerity Bill

    Portugal Receives Bailout Endorsement

    Stocks Climb in Europe as U.S. Index Futures Advance

    Small Investors Recalibrate After Market Gyrations

    Bernanke Borrows From Carney’s Stimulus Playbook With Interest-Rate Pledge

    First-Time Jobless Claims in U.S. Unexpectedly Decrease to Four-Month Low

    Citadel Chief Gives Up Dream for Investment Bank

    Hong Kong Telecom Giant PCCW’s Profit Rises 8% on Mobile, Pay-TV Profit

    Machinist Union Prevails at United

    Bank of America Chief Sees Top U.S. Officials

    Zynga Restates Sales on Accounting Change

    Joshua Brown: Big Bounce, Gold and Bonds Give a Bit

    Howard Lindzon: Excess Supply is a Bitch …. Don’t Trust Demand… and Risk Management Rules

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  • Intrade: Democrat to Win in 2012 = 49.9%
    Posted by on August 11th, 2011 at 4:00 pm

    From Intrade, the latest futures price for a Democrat to win next year’s presidential election dropped to 49.9.

    For a Republican to win, the contract is 46.7.

  • 10-Year TIPs Yield = 0%
    Posted by on August 11th, 2011 at 2:16 pm

    Amazing.

  • S&P 500 Nears Death Cross
    Posted by on August 11th, 2011 at 1:27 pm

    The S&P 500 is very close to reaching a “Death Cross.” This is when the 50- and 200-DMA cross.

    This time, the 50-DMA is set to fall below the 200-DMA which technicians consider a signal of more bearishness ahead.

    Last summer, the 50-DMA was below the 200-DMA from July 1 to October 21. Bear in mind that the S&P 500 rose 15% over that time so this is hardly a perfect indicator.

    The key number for today is 1158.84. If the S&P closes above that, the 50-DMA will still be above the 200-DMA.

  • The Notch In the Yield Curve
    Posted by on August 11th, 2011 at 11:22 am

    This is an important point but it’s difficult for me to explain so please bear with me. Below is the current Treasury yield curve. The key part is the notch that extends out about three years (I added the red line to highlight the area). The blue line is pretty flattish and doesn’t start to rise until 2014 or 2015.

    Embedded in any yield curve is a prediction of where short-term interest rates will be in the future. The steepness of the blue line indicates how quickly rates will rise.

    What’s happened recently is that the market doesn’t expect rates to rise for some time. This is a direct response to the Fed’s throwing the towel announcement from earlier this week. In turn, this has led investors to crowd into gold.

    Normally, a steep yield curve is very good for stocks (and banks). The problem is that steepness doesn’t really start on the yield curve until about three years out.