A few days ago, I woke up to news that reminded me of the “Dot-com Boom” of the late 90s and early 2000. I’m sure you remember those days—the days when any company with “.com” attached to it received a lot of attention….and a high stock price. Investors bought these stocks without any concern for non-existent revenues; forget earnings.
These days, social media stocks are the new “dot-com” wonders. We recently heard that Facebook Inc. (NYSE/FB) bought “WhatsApp,” an instant messaging application for smartphones, for $19.0 billion. The valuation doesn’t make much sense; the company has only 50 employees, 460 million monthly users, and no clear business model.
Last year, we saw Twitter, Inc. (NYSE/TWTR) do an initial public offering (IPO). On its very first day of trading, the stock price increased by more than 70%. This company lost more money in 2013 than it did in 2012. Twitter’s loss per share in 2013 amounted to $3.41 compared to a loss of $0.68 in 2012. (Source: Twitter, Inc., February 5, 2014.) But investors shouldn’t fear; in the last quarter of 2013, hedge funds got into the game and bought Twitter’s stock.
Dear reader, I’m not saying Facebook or Twitter is … Read More
Whenever I got stuck solving a problem in elementary school, my teacher would say, “go back and see where you went wrong.” This lesson—“learn from your mistakes”—was taught again in high school, and then throughout my life. It’s very simple: you can’t do the same thing over and over again and expect different results. Albert Einstein called it “insanity.”
When I look at the Japanese economy, I see the most basic lesson you learn in business school being ignored. The Bank of Japan, and the government, in an effort to improve the Japanese economy has resorted to money printing (quantitative easing) over and over, failing each time to spur growth. One might call it an act of insanity.
Through quantitative easing, the central bank of Japan wanted to boost the Japanese economy. It hoped that pushing more exports to the global economy from its manufacturers would change the fate of the country. It wanted inflation as well.
The result: after years of quantitative easing, the government and the central bank have outright failed to revive the Japanese economy. In fact, the opposite of their original plan is happening.
In January, the trade deficit in the Japanese economy grew—the country’s … Read More
The demand and supply situation of gold bullion is clearly going in favor of the bulls, and I continue to believe the precious metal is presenting investors with a buying opportunity of a lifetime. I believe that if I buy now, I will profit later.
Let me explain…
Demand for gold bullion is rising, and it’s not just happening in the typical precious metal-consuming countries like India and China, but in the U.S. and elsewhere in the world as well. Central banks are also buying.
2013 was a very interesting year when it came to demand for the precious metal. We saw a massive amount of sellers come in and bring down the prices for gold bullion. Gold bugs like John Paulson changed their tone towards the yellow metal as prices fell.
But while the sentiment towards gold bullion was turning negative, central banks were buying more of the precious metal. Why were they buying? As I have told my readers over and over again, the currency markets jeopardize their reserves. According to the World Gold Council, in 2013, central banks around the global economy bought 369 tonnes of gold bullion. (Source: World Gold Council, February 18, 2014.)
Central banks … Read More
For the first time in more than three years, Chinese stocks are beginning to show some promise for growth investors looking for opportunities outside of the United States.
The benchmark Shanghai Composite Index has moved to just above its close of 2013; hence, it’s more or less in line with the S&P 500 and Dow Jones Industrial Average.
Many of you are aware of my continued bullishness for China, as I have talked about this in recent commentaries.
We saw some encouraging estimates on Tuesday. The country’s industrial output is estimated to rise 9.5% this year, which could support gross domestic product (GDP) growth of 7.5%, according to Industry and Information Technology. (Source: “China targets factory output growth of around 9.5 percent in 2014,” Reuters, February 17, 2014.) What’s interesting is that the key areas of growth for this year include telecommunications, along with a big jump in business for software and information technology (IT).
You can play the growth in these areas via Chinese IT services firms, such as iSoftStone Holdings Limited (NYSE/ISS, $5.15, Market Cap: $297 million), a provider of IT services to clients and globally. Services include consulting and solutions, IT services, and business process outsourcing. … Read More
In 2013, the U.S. economy, as measured by gross domestic product (GDP), rose at an average rate of 1.9% compared to 2.8% in 2012. And as it stands, GDP may slow further in 2014.
What makes me think this?
In January, U.S. industrial production declined by 0.3% from the previous month. This was the first decline in production since August of 2013. Production of automotive products in the U.S. economy declined by 5.15%, and appliances, furniture, and carpeting production declined by 0.6% in the month. (Source: Federal Reserve, February 14, 2014.)
And factories in the U.S. economy just aren’t as busy as they used to be. The capacity utilization rate, a measure of companies using their potential production, was 78.5% in January. The average rate between 1979 and 2013 has been 80.1%. While a difference of two percent in factory utilization isn’t a big number, because overhead is often fixed in factories, a two-percent decline in production is a big deal.
Then there’s the inventory problem; inventories in the U.S. economy continue to increase. In December, inventories at manufacturers increased by another 0.5% to $1.7 trillion. From December 2012, they have increased by 4.4%. (Source: U.S. Census Bureau, … Read More
Tesla Motors, Inc. (TSLA) has been an excellent trade. The position has recovered strongly and is a very good example for traders who speculate on changes in investor sentiment.
Trading a stock like Tesla is about price momentum as much as anything. And every business, no matter how successful or fast-growing, experiences operational difficulty. This creates opportunity for a trader who is comfortable going against the market.
Tesla ran into problems with its “Model S” and was required to do a recall to help prevent battery fires after an accident. It was a short-lived but perfect storm in investor sentiment, which created an attractive new entry point for traders. (See “The Stock Everyone Is Talking About; How Much Higher Can It Go?”) The company’s stock chart is featured below:
While many investors/traders are attracted to low-priced or penny stocks for their turnaround potential, these stocks are usually down for a reason. In buoyant, highly liquid capital markets like we have today, a buy-high/sell-higher type of strategy can pay off.
The risk is that the price momentum ends, whether it is due to a material corporate event or a general decline in speculative fervor. Biotechnology … Read More
Quite a bit of speculative fervor has been zapped out of this market, which is helpful for the longer-run trend.
With the exception of biotechnology stocks, trading action has softened in initial public offerings (IPOs), 3D (three-dimensional) printer stocks, cloud software stocks, and even a lot of restaurant stocks that only recently were very hot.
The stock market is just a continuing cycle of fluctuating investor sentiment. Valuations among junior energy producers got really excessive last year and the entire group now seems to be in consolidation.
Gold and silver stocks appear to have been toast for a while. As is always the case in resource investing, even the best growth stories can’t generally get their share prices moving if the underlying commodity price is stagnant. Precious metals stocks have always traded in manias, and this is not likely to change.
In a slow-growth environment, dividend income is key. And after an exceptional year like 2013, it may just be the only rate of return to be had.
But like so many large-cap stocks last year, some of the best dividend payers have already gone up tremendously. There isn’t a lot of value for an equity buyer these days…. Read More
When it comes to investing, history has taught us one very important lesson: ideal buying opportunities are formed when there’s significant pessimism towards an investment. In other words, to make it really big, you need to have the guts to buy an investment when everyone else is selling it…when it’s completely out of favor with the majority of investors.
While the general stock market is up close to 150% since March of 2009, there is only one investment that has been hard hit over the past couple of years. Long-time readers of Profit Confidential know exactly what I’m talking about: the shares of quality gold producers have taken it on the chin.
The contrarian in me couldn’t be talking louder; “buy when there’s blood on the street.” Very few investors like gold producers right now. In fact, the Dow Jones U.S. Gold Mining Index is down 60% since October 2012. Over the same period, the Dow Jones Industrial Average has risen nearly 30%. Gold stocks have fallen at twice the rate industrial stocks have risen. This is a rarity.
But the reasons to own the gold producers are becoming more compelling each day.
After putting on a relatively flat performance … Read More
Fiat money has a less-than-flattering nickname: “toilet paper money,” or, essentially, paper money.
The less crude definition of fiat money is any money that is declared to be legal tender by a government. It is also money issued by any state that is not convertible by law to any other form of currency, such as gold. It is also defined as money with no intrinsic value.
Looking back on history, every fiat currency, from the Roman denarius right up to the paper money that has been used in the U.S. since the Revolutionary War, has collapsed eventually, with the country or state’s government often being to blame for this.
Fiat money was used in China in the eleventh century and received widespread use in the Yuan and Ming dynasties. It was known as “flying money,” since it would easily fly out people’s hands. The notes eventually fell out of favor, with an attempt to resurrect them during Kubla Khan’s dynasty. Marco Polo praised the currency in his book, The Travels of Marco Polo.
Tally sticks were used in as fiat money in England in the eleventh century when there was a gold shortage during the reign of Henry I. The … Read More
On Friday, we learned that the U.S. economy added a lower-than-expected 113,000 jobs in January and the “official” unemployment rate had dropped to 6.6% from 6.7% in December. (Source: Bureau of Labor Statistics, February 7, 2014.)
How can we create so few jobs and have the unemployment rate improve? It’s because the way the government calculates the unemployment rate is skewed. (It gets me outright mad to listen to politicians tell us the jobs market is getting better, when in fact, it’s not.)
The most obvious problem with the government’s way of calculating the unemployment rate is that it excludes people who have given up looking for work and those who have part-time jobs but want full-time jobs. If we were to include those two groups, the underemployment rate (as it is referred to) sits at 12.7%—and it’s been above 12% for a very, very long time. (This is something you didn’t hear President Obama talk about in his State of the Union speech two weeks ago.)
Now if we look a little deeper, we discover a much bigger problem in America. People who have the ability to work are leaving the jobs market!
What I’m talking about is the … Read More
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