Sunday, July 20, 2014

Black Math







Bumpus Capital IT Basket

(All data from finviz.com)

eBay $65B (online marketplace, mobile payments)
+
Yahoo! $33B (digital content, search - #2 US web property in 2014)
+
Netflix $27B (video streaming)
+
Twitter $22B (social network)
+
LinkedIn $19B (professional networking)
+
Yelp $5B (local search)
+
Zynga $3B (mobile gaming)


  • $174B market capitalization
  • $81.53B ttm revenue
  • 2.13x sales




Facebook

  • $176B market capitalization
  • $8.92B ttm revenue
  • 19.73x sales




Just sayin'.











Tuesday, July 15, 2014

Does This Behavior Look Familiar?






I'm not a bubble-caller nor a market-timer - but if we ARE in a bubble and we are anywhere near the top, then Facebook is AOL.

I will probably have a more lengthy post on this but the bull case on Facebook is shockingly similar to AOL's in the late 90s.

Be safe out there.

Friday, January 17, 2014

Fun with Indexing


This chart speaks for itself, but the punchline bears repeating.

Most indexes are no good. Capitalization-weighted indexing makes investors too dependent (overweight) on recent winners and don't even get me started on the price-weighted Dow.

Check out how much the equal-weight S&P index fund (RSP) has outperformed the traditional cap-weighted approach (SPY) since the bull market began:


Click me - I get larger


Joe Investor would be best served by holding a diversified portfolio of equal-weight index ETFs, but guess what? They're pretty hard to find - go figure.

Please comment below if you're shocked that the financial industry does not offer a practical solution that requires the disassembly of an embedded gravy train, but I don't expect anyone to answer.



Saturday, January 4, 2014

The Problem with the Right, in One Easy Link






A few months ago I started reading Scott Grannis' blog, The Calafia Beach Pundit. Refreshing, I thought: a guy who leans right but doesn't seem like a fundamentalist psychopath. And he loves charts. I was intrigued.

But after catching up on my reading, I came across this post from last week about Obamacare and the issue of subsidies for health plans. Read it for yourself, but it's the perfect primer for someone looking to see why the ideological, political and economic right are wrong and explains why they've been cast away to their bomb shelters for many years.

Scott applauds family friends as they have decided to forego healthcare for their daughter because they're too "proud" to take a government "handout." Earth to Scott: your friends qualify for subsidies, therefore they've been subsidized in various forms via progressive federal taxation for their entire lives. You know - that whole part about other people paying more so they can pay less. Or did they send extra money to the US Treasury every April 15th because that's what's "fair?" Didn't think so.

Grannis is disconnected and flatly wrong - choosing to protect your family with health insurance could literally be the only decision one may ever make regarding LIFE AND DEATH. Who gives a shit if now it means you have to take a subsidy to afford it? You take care of your family's health at any and all costs - pretty basic rule that most (non-cyborgs) live by. Pride should not be in the equation.

According to the teachings of Scott's ideologic leanings, his friends should have made better life choices so they could afford better insurance in the first place. Why isn't he shunning those poor decisions, and instead is applauding their absolutely idiotic one to forego health insurance?

These guys would rather let their family members DIE or declare bankruptcy (and thus becoming subsidized at the hospital anyway) before conceding that maybe, just maybe, they don't live in a libertarian utopia.





Wednesday, November 6, 2013

Art as an Indicator



There's no way to predict when a bubble will burst, but long live the bubble indicator!

That said, here's my favorite indicator for froth in the market. Will it flash its sell signal anytime soon? Your guess is as good as mine.

It's the chart of Sotheby's since its IPO in the 80s:




BID was very close in 2011 to flashing its signal but it wisely never got there, and the market has reached new all-time highs since then.

QEInfinity and an indefinite zero interest rate policy is causing investors to reach further out for gains. Will Sotheby's tell us when the party's about to be over?


Wednesday, September 25, 2013

Visa's Asking to Be Shorted





It's a pretty simple setup:

Twice, the stock pierced previous support on heavy volume only to close lower. The chart shows brief, exuberant spikes met with huge supply. I would expect these events to shift momentum in favor of the downside for the short term.

There's also a nice gap waiting to be filled around $179. A short position initiated on Thursday would provide a 2.5x reward to risk ratio if a stop is placed at $196.5 and a target of $179. Mastercard remains attractive so it could be a worthy long hedge to offset this short position.

Here's a wider view:






Thursday, September 19, 2013

Offshore Drilling Haiku



Tips are for waiters
But RIG is a screaming buy
Twenty years below






If you're a chartist and you don't salivate over a double trendline test and defense on heavy volume, well, then you're not a chartist.


Tuesday, September 17, 2013

Three Reasons for Sprint's Underperformance







-- 1) The Simple Guy Wins the Lottery Effect --

We've all heard about the guy who wins the lottery and swears he won't change. He'll still get up for work every day because, you know, he's still the same guy you've always known. He'll still drive that old pick-up truck. Money won't change him, he swears. Alright, good for you, guy.

Earth to Dan Hesse: YOU JUST WON THE LOTTERY. You can't afford to be that guy. Modesty should no longer be in the Sprint corporate structure.  You now have very wealthy big brothers in Softbank and they gave you a VERY large allowance. Now is the time to unleash some marketing dollars. Why have a I seen zero uptick in television ad spend? When I watch football or golf on the weekend I should be reminded hourly about how great Sprint is. Why did you state that we won't see a marketing blitz until next year?

-- 2) T-Mobile is eating their lunch --

(Preface: I previously thought Sprint had done enough to entrench itself as a stable giant, but recent events have caused me to question that stance.)

The only way Sprint survives is if it become an accepted member of The Oligopoly. Don't like that the other guys just announced ridiculously complicated, rip-off zero-down early upgrade plans? Too bad. After T-Mobile announced their plan, Sprint should have had their response in the hopper, ready to go as soon as T and VZ were rumored to be following. Instead, they're now making it to market last of the four big boys if they do indeed announce an early upgrade plan on September 20th, way behind the others. When the oligopoly acts in tandem - you can lazily follow if you're an entrenched member. But Sprint is not a fully entrenched member yet.

Once the accepted disruptor in the industry, introducing innovative and consumer-friendly initiatives, Sprint has rolled over without a fight and handed that baton off to T-Mobile.  Guess what, guys: If you don't have the network, if you don't have the right reputation, and if your net adds are going in the wrong direction then you don't have the right to be standing on your heels in a reactionary position in the industry. Your business is not a perpetuity by any means and the dividend checks are not going to be rolling in every quarter. The network still sucks comparatively, customer service reforms haven't had time to sink in and you're still bleeding post-paid customers.

The next blow was the new Nexus 7 being left off of the Sprint network. Once a great partner, why is Google going with the other guys, including T-Mobile?

Following a curious snub from Google was the announcement that the new iPhones will not operate on the 2.5GHz spectrum freed up for LTE from the the gift that keeps on giving that is Clearwire. Dan, for a man that believes the iPhone is the greatest thing since sliced bread, you sure have dropped the ball here. Your beloved iPhone will not be offloading its data onto your cavernous spectrum purchase - why?

Here's the simplified playbook:

Disrupt industry with large warchest from Big Brother --> gain loyal subscriber base while marginalizing T-Mobile --> slowly fade into the loving arms of The Oligopoly --> provide little differentiation from VZ & T because you're now in the club --> collect large economic profit.

-- 3)  Sprint is getting lumped in with the "OMG rising rates are going to destroy the world" panic among weak-handed grandmothers and reactionary traders,  driven by ratings-starved daytime financial newscasters in search of job security --

Yes, Sprint has a lot of debt. Yes, it's a problem. No, it's not going to bankrupt them (refer to section 1's lottery results).

What beats a heavy debt load? Cash flow - but it's not going to come if the company just fades into oblivion. The Softbank money should have created a major acceleration of progress within the firm, an argument I've also made about Tesla. The jury's still out on that one, but there's one thing I know for sure: sitting on billions of dollars is not going to yield much interest in this rate environment.

Gravity is going to keep imposing its will on Sprint shares if a sense of urgency is not adopted.


Thursday, August 29, 2013

Will Rising Rates Kill Dividend Stocks?



The answer is no.

If you read this article, which I think is ill-informed, you'd be scared into thinking that rising treasury rates are going to cause havoc among Grandma's favorite divvy plays.


Grandma has been spoiled by her Verizon Wireless stock ownership.


First of all, why does Dearest Granny own a bunch of dividend stocks, anyway? Why do you have her over-allocated to equities? Uncle Ben's plan must have worked - he tricked you into buying riskier assets.  Why didn't you just tell her to take her medicine - besides the daily buffet in her plastic pill box - and accept lower yields? Does Granny think your stock picks are going to make up for her poor planning? The difference in risk between CDs for Granny yielding 1% and a utility company yielding 5% would be enough to drop her dead of a heart attack if she knew better.

Commentary on your -  and Granny's - poor choices aside, rising rates are far down on the list of things to be worried about for dividend paying stocks. Why?

The risk factors between stocks and bonds - components that cause day-to-day and year-over-year fluctuations - are very different. So very different that the percentage of daily or yearly fluctuation due to interest rates is probably in the low single digits.

The only thing in common between dividend paying stocks and bonds is that they pay a coupon. That's it. The coupon isn't even guaranteed for equities! Bonds have a predictable stream of income, and eventually principal, that is discounted at the market rate of interest and percentage chance of default in order to determine its fair value. Are we really going to pretend that a massive factor driving the net present value of a stock is what happened to US T-bonds that day?

The biggest factor, by far, that drives stock prices - and dividend stocks are not treated any differently - is systemic risk. That's market risk, the force of the daily ebb and flow of the broad equity universe and the appetite for risky assets. Systemic risk accounts for about 80% of daily stock fluctuation. Next on the list is factors that affect a company's industry. After that is company specific risk - idiosyncratic risk for the nerds out there - which encompasses things like company earnings, product announcements, leadership changes etc.

Only after those forces are taken into effect will interest rate risk have its slight influence. Yes, the dividend stream from the future will have to be discounted if rates rise and that will slightly lower the net "expected return" from a stock. But the inherent riskiness of the equity portion of that return far outweighs any influence from changes in dividend yields.

Okay, but companies will have to pay higher interest expenses when they issue new debt and that'll lower their discounted value!

Yeah, that's true if the future didn't exist. But interest rates are going up because the economy is improving. The economic engine is spitting out higher returns for any given input. That means the earnings outlook for a dividend paying company would also be improved, and wouldn't that outweigh increases in interest payments or even reduce the need for debt in the first place?


You've misallocated Grandma's money - and she's pissed about it.











My point is that Dividend Stocks are really just Stocks That Just So Happen to Pay a Dividend. It's not their fault they get lumped into the portfolios of the tin-foil hat crowd. One can easily prove the point that dividends are really nothing but a comfort blanket for old school investors, and that there is pretty much no economic benefit to dividends (especially when considering taxation) from equities besides psychological effects.

The argument that higher interest rates will kill dividend paying stocks has not been well thought out. It's a convenient conclusion to a complicated process of equity valuation (a process that often has no good answers) and it produces a lot of opportunity simply because a lot of people buy into it. It's an argument that sounds smart, but it's not.

The loser here is Granny. She's invested in assets she shouldn't be and now she's going to have to pay commissions to buy all of those CDs she should have owned in the first place.




Sunday, August 25, 2013

Let's Play a Game



I call it: 

Tesla Motors or Johnson & Johnson?


Pick carefully. Which one is which?



A)





B)



The volume of chart B makes it a dead giveaway for TSLA, but the point of this game is to provoke some thought about the insanity of both moves.  If you told me that chart A was TSLA I would easily accept it at first glance.

So while TSLA's move has been unbelievable, what does it say about JNJ to see that it has shadowed that move pretty much every step of the way?

Which one has the best reward/risk ratio right now; the "boring" Dow component or the Cult of Musk?

I own both but I'm leaning towards band aids and boner pills versus batteries and ball bearings.