Posts by Aaron Task

  • Apple going to the Dow: Overdue and overrated

    Aaron Task at Yahoo Finance 12 hrs ago

    Apple is going to be added to the Dow Jones Industrial Average, effective March 19, S&P Dow Jones Indices announced Friday. Adding Apple to the Dow is an obvious and overdue move if the index really is supposed to be a barometer of the 30 most-important American companies. It's also a move that reinforces why professional investors pay far more attention to the S&P 500 vs. the Dow, which most Americans (and most journalists) think of when they refer to "the market." First, the Dow is price-weighted, which is an odd configuration for any index. One reason Apple wasn't in the Dow previously is that before its 7-to-1 stock split last June, it was viewed as being "too expensive." Pre-split, Apple shares would now be trading close to $900, which would have given the company far too big a weighting in the index. As it stands now, Apple would only be the sixth-most expensive stock in the Dow 30 behind Visa, Goldman Sachs, IBM, 3M and Boeing, Marketwatch reports. Again, Apple is by far the largest public company in America but it's only the "sixth-most" important in the Dow, based on its price. Further adding to the oddity of all this: the stated reason why Apple is being added to the index now is that Visa stock is splitting 4-for-1 on March 18, which will "reduce the weighting of the Information Technology sector in the index," according to a press release from S&P Dow Jones Indices -- which categorizes Visa as an IT vs. a finance company. "Moreover, the DJIA is over-weighted in telecommunications and AT&T and Verizon are quite similar, though AT&T has a smaller market capitalization,” David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices said in the press release. How small is it? At roughly $174 billion, AT&T's market cap is smaller than Apple's cash horde, one of the many eye-opening statistics being tossed around Friday in the wake of this latest change to the Dow's makeup. In addition to being price-weighted, the somewhat arbitrary nature of changes to the Dow is another big reason why the pros focus most of their attention on the S&P 500 vs. the DJIA. ( Hint: So should you.) Keep this in mind the next time the Dow hits a record. People sometimes talk about "inflation-adjusted" records but the composition of the index matters most of all. The Dow would have been 450 points higher last Friday had Apple replaced IBM after the split last June and would have gained 9.8%  vs. 7.1% since then, Reuters reported earlier this week. ( If nothing else, today's decision will finally put an end to the "Why Isn't Apple in the Dow?" and "When Will Apple Be Added to the Dow" memes.) Another stat/factoid being tossed about for your consideration: Companies added to the Dow outperform the S&P 500 by 3% in the 30 days after the announcement, according to Bernstein Research. But that outperformance tends to be short-lived. There is a “clear pattern” of good performance leading up to the addition then “bad performance following,” Jason Goepfert, president of Sundial Capital Research, tells Marketwatch. Goepfert examined the 20 days before and after an addition but recent history suggests the index tends to add stocks when they're peaking, and occasionally before big falls. Notable examples include Intel and Microsoft, added to the Dow in November 1999, and Bank of America, which was added in February 2008. On the flip side, stocks often perform well after being booted from the index, with Hewlett-Packard being the most obvious recent example. (The stock is up about 55% since being dropped from the Dow in September 2013.) This is by no means a recommendation or a forecast but I can assure you some professional investors are right now looking into a paired trade: Short Apple-Long AT&T. (Update: In 32 of 50 Dow changes from 1928 to 2005, the deleted Dow stock outperformed the added name, and the p ortfolio of stocks removed gained 19% over next 250 trading days vs. a 3% gain for stocks added, according to this 2005 academic study by economists at Pomona College.)

  • The Mall is not dead yet but "it's a good time to get out," Davidowitz says

    Aaron Task at Yahoo Finance 1 day ago

    Shares of The Macerich Company were over up 5% in recent trading after The Wall Street Journal reported Simon Property Group has made multiple overtures about a potential merger. No official offer has been made and Macerich is domiciled in Maryland which has antitakeover provisions. But Simon revealed a 3.6% stake in its smaller rival in November which many viewed as the first step toward a bid. A Simon-Macerich merger, should it come to fruition, would combine the nation's largest and third-largest mall operators and continue the industry consolidation that's occurred since the bursting of the credit/real estate bubble in 2008. In 2009, General Growth Properties filed for Chapter 11 bankruptcy protection and many observers have declared the "death of the mall" as more consumers go online and one-time anchor tenants like Sears and JCPenny retrench. "This deal all about leverage," says veteran retail analyst Howard Davidowitz. "The name of the game is to get as much leverage as you can [with tenants]. Not only to increase rents in the good centers but also force people not to get out of the medium ones." Macerich would be wise to sell to Simon if the price is right. "It's a good time to get out," he says. "The shopping center business in general is not a great place to be -- not with the growth online and move toward urbanization, the downsizing of the size of stores. And there's no growth in the department store business and you can't have a mall" without those so-called anchor tenants.

  • Nasdaq 5000 fades from view amid "disturbing" signs for bulls

    Aaron Task at Yahoo Finance 1 day ago

    The stock market roared in February but March is coming in like a bear. Stocks suffered a second-straight decline Wednesday with the Dow falling 0.6% and the Nasdaq now down 0.8% from Monday's 'Nasdaq 5000' milestone. Of course, two days does not a market make and reports of the bull market's death have been greatly exaggerated for nearly six years now. But David Nelson, chief strategist at Belpointe notes some "disturbing" trends that could at least put the market on a "sideways" (vs. upward) trajectory this year. Most notably, Nelson notes that estimate revisions for S&P 500 stocks have fallen for seven-straight months, citing the analysis of Merrill Lynch strategist Savita Subramanian. Nelson details the trend here in his post on Yahoo Finance Contributors Network, but the short story is analysts have been cutting earnings estimates.

    To be clear, Nelson stressed he's "not making a call 'this is the top'" but early warnings signs are starting to appear and one of these days the bull market is going to end.

  • The China Syndrome: It's getting rough but US firms can't quit China

    Aaron Task at Yahoo Finance 3 days ago

    President Obama told Reuters Monday he has "raised directly with President Xi [Jinping]" concerns about pending Chinese legislation that requires technology companies provide the Chinese government "backdoor" access to encrypted files and store data on Chinese users in China. The law, which is expected to be adopted by China's parliament in the near term, "would essentially force all foreign companies, including U.S. companies, to turn over to the Chinese government mechanisms where they can snoop and keep track of all the users of those services," Obama said. "We have made it very clear to them that this is something they are going to have to change if they are to do business with the United States." President Obama's response to what China calls an anti-terrorism law is just the latest escalation in a series of policy disputes over cybersecurity and related issues initially triggered by Edward Snowden's 2013 leak of classified NSA surveillance programs. The Justice Department's indictment of five Chinese military officers in May 2014 for allegedly stealing trade secrets was another major event in what Reuters calls "a major irritant in U.S.-China relations." Starting last summer, Chinese government agencies were ordered to use home-grown technologies vs. those made by Microsoft (MSFT), IBM (IBM), Cisco (CSCO) and Oracle (ORCL), while Google's (GOOGL) service were disrupted ahead of the 25th anniversary of the 1989 Tiananmen Square protests. "To resist the naked Internet hegemony, we will draw up international regulations, and strengthen technology safeguards, but we will also severely punish the pawns of the villain," China's The People's Daily said last June. (The obvious irony here is that China is accusing U.S. tech companies, including our corporate parent Yahoo, of being tools of the government when that is almost certainly how China's government is using its homegrown tech firms, with Huawei being a prime example.) In addition, Western automakers General Motors (GM), Mercedes, Audi and Volkswagen were targeted for allegedly violating Chinese antitrust regulation while local offices of Microsoft and its China Accenture partner were raided in August. Generally speaking, most investors have looked at these US-Sino cyber security issues -- if they're even paying attention -- as mainly a political sideshow for local Chinese consumption or, at worst, a mere rhetorical battle between the world's first- and second-largest economies. But China has both national security and economic interests behind its "Buy China" campaign and investors ought to start paying more attention to these developments, as I wrote herein August. U.S. companies aren't forced to break-out their revenue by any particular geographical segment; as such, many firms don't specifically mention China. According to S&P Capital IQ, only 40 S&P 500 companies disclosed specific figures on China sales in their fiscal 2014 annual reports, with the average proportion of full-year revenue at 16.3%. Based on that data, we compiled a list of the S&P 500 companies with the greatest share of sales in China, of those that disclosed such information, at left. Qualcomm, for example, which last month agreed to pay a $975 million fine to settle allegations it violated the country's antitrust regulations, generated nearly 50% of its fiscal 2014 revenue from China. (Qualcomm shares have risen since the settlement was announced since it removed "uncertainty" over its China legal issues.) The bottom line is, naturally, the bottom line: Even as the pace of economic expansion slows, China is still viewed as a huge "growth opportunity" for U.S. multinationals and there's real money at risk if China closes its markets -- or makes it cost prohibitive for foreign firms to enter (or stay) in the world's most-populous nation.   "Western firms know they've got to be in China because the market is expanding so rapidly but playing by Chinese rules is often difficult," says Wharton Dean Geoffrey Garrett. "It's not trivially easy to operate in the Chinese market but the upside is incredibly high." As you'll see in the accompanying video, Garrett believes the Chinese market is simply too big for Western firms to ignore, even if it's becoming more challenging to operate in the Middle Kingdom. Five years ago, Apple was assemblying phones in China for exports, he notes; now sales in China account from 17% of its revenue.

  • Congressional cowards push America to the brink -- again

    Aaron Task at Yahoo Finance 7 days ago

    “You coward!” That's what House Minority Whip Steny Hoyer (D-MD) called Majority Leader Kevin McCarthy (R-CA) during this week's debate over funding the Department of Homeland Security. Hoyer lated apologized but "coward" could accurately describe all of Congress, as the DHS fight is just the latest in a series of political "crises" both parties have inflicted on the nation in recent years, with no end in sight. As of this writing, the Senate is expected to pass a measure Friday to fund DHS for another three weeks. However, passage in the House is not guaranteed as many conservative Republicans object to the absence of opposition to President Obama's executive order action on immigration while Democrats want a long-term solution. (Meanwhile, the debate has revealed ongoing fissures within the Republican party House Speaker John Boehner revealed he hadn't spoken to Senate Majority Leader Mitch McConnell in the two weeks leading up to the DHS showdown.) But even if the House passes the temporary financing measure, "Senate Democrats have already dismissed the prospects of any conference committee — so in three weeks, Congress could be back where it stands now," Politico reports. And between now and then, Congress will face a deadline over the government debt ceiling, which was set in February 2014 when Congress agreed to "suspend" the debt ceiling for 13 months in order to punt the issue past the November election and to the current Congress. Do you have faith the new Congress is any better able to manage this than the last one -- or the one before that? Me neither. Of course, "the Treasury secretary can use a number of gimmicks to postpone the day of reckoning, and experts think such gimmicks can carry us through September or October," former Fed Vice Chair Alan Blinder writes in The WSJ. But "if nothing is done between now and March 15 -- and I guarantee you nothing will be done -- the U.S. government will begin breaching the national debt ceiling on March 16." At this moment, the financial markets appear little concerned about the DHS funding issue and aren't even thinking about the pending debt ceiling showdown, although maybe that will be the "next big story" in DC once the DHS issue is resolved one way or the other, temporarily or not. After the debt ceiling, the so-called doc fix, the Byzantine Medicare reimbursement formula for doctors, needs to be updated as the current version expires on March 31. The prevailing wisdom on Wall Street is that despite a track record of Congressional recidivism, our elected officials won't risk another debt-ceiling crisis as occurred in 2011, when Standard & Poor's downgraded America's credit rating and the stock market suffered its worst downturn since the 2008 financial crisis. Do you think Congress is smart enough to avoid another self-inflicted wound? Me neither. No matter what your politics, I hope we can agree that America -- and the American people -- deserve better than this kind of "rolling crisis" and that we really have no right to make fun of the Greeks.

  • Dow 20,000 here we come: "This market is going higher," Schatz says

    Aaron Task at Yahoo Finance 8 days ago

    With Nasdaq 5000 seemingly a foregone conclusion, market pundits are already looking ahead to the next big round-number milestone: Dow 20,000 is "definitely" going to happen this year, says Paul Schatz, president and CIO of Heritage Capital. "And if we get there we're going to go above it. " While Dow 20,000 may seem like a big number, it's less-than 10% from current levels and Schatz believes the bull market, while aging, still has plenty of life left in it. "The bull market is old [and] wrinkly but it's not dead," he says. "And usually the end is where you get the biggest 'woosh'" higher.

    Aaron Task is Editor-at-Large of Yahoo Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com.

     

     

     

  • History repeats: Dick Bove warns new mortgage crisis coming

    Aaron Task at Yahoo Finance 10 days ago

    Dick Bove is back. Not that the bearded-bank analyst ever really went away, but Bove is making headlines today with a post on CNBC.com that argues "another potential mortgage crisis" is brewing. You can read Bove's piece here but I would sum it up thusly: 'Onerous regulations have made private mortgage lending uneconomical and the government is once-again (still) overly reliant on Fannie Mae and Freddie Mac to carry the burden, putting the U.S. taxpayer at risk. Be afraid, be very afraid.'

    Three things to note here:

     

    A bubble has many fathers but its aftermath is orphaned of people willing to take the blame, to paraphrase JFK. A bubble also typically takes a long time to form and we're a long, long (long) way away from an era where "everybody" wants to buy a house because you "can't lose" in real estate. Indeed, the pendulum has swung so far in the other direction that many Americans who can qualify for mortgages are foregoing a house purchase even though affordability levels are historically strong due to low interest rates and surging rental prices in much of the country.

  • Subprime comeback: The good, bad and (potentially) ugly ramifications

    Aaron Task at Yahoo Finance 15 days ago

    Reports of lenders lowering standards and subprime lending making a comeback have not been exaggerated. Nearly 40% of consumer loans in the first 11 months of 2014 were to people with a credit score below 640, aka subprime borrowers, The WSJ reports, citing data from Equifax. That's the highest level since 2007.

    Related: U.S. taking on more debt, what it means for the Fed

    Three-handed Economist

    Aaron Task is Editor-at-Large of Yahoo Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com.

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  • Central banks still in "emergency mode": WSJ's da Costa

    Aaron Task at Yahoo Finance 22 days ago

    Today was supposed to be all about Greece, but that's going to have to wait until Monday (which, I'll note, is a market holiday in the U.S., further complicating the picture).

    Instead, the market's macro focus this morning was on a Russia-Ukraine ceasefire, the Bank of England signaling a rate hike sooner vs. later and a surprise rate cut and QE announcement by Sweden's central bank.

    "It's a really exciting time to be a central bank reporter, which I'm pretty sure is not good news for the world economy," says Pedro da Costa, economics reporter for The Wall Street Journal. "It means, effectively, all these central banks -- six years after the crisis -- are still operating more or less in emergency mode. It shows you just how difficult it is to get the economy out of a disinflationary gravitational pull when growth slows globally all at once."

    Aaron Task is Editor-in-Chief of Yahoo Finance. You can   follow him on Twitter   at @aarontask or email him at   altask@yahoo.com.

  • Obama's 'solution' to student loan debt crisis skirts Congress, adds to deficit

    Aaron Task at Yahoo Finance 28 days ago

    Around 40 million Americans are saddled with more than $1.2 trillion in student loans, which last year surpassed credit cards as the largest form of consumer debt. The student loan debt burden is having a major impact on the macro economy by delaying first-time home purchases and marriages, as well as limiting the mobility of many recent grads, which hurts their long-term earnings potential and sense of optimism about the future. In an effort to address the crisis in student loans, President Obama embraced a "pay-as-you-earn" scheme wherein payments on federal student loans are capped at 10% of income and loans are forgiven after 20 years. The plan was first launched in 2012 and then expanded this year to include borrowers who took out loans before October 2007 or stopped borrowing by October 2011, making an estimated 5 million Americans eligible for the program. It sounds great on paper and certainly welcomed by those able to take advantage of the program. But there's no free lunch. The President's 2016 budget proposal reveals the "pay-as-you-earn" program will add $21.8 billion to the federal deficit, a nearly 5% increase. At $21.8 billion, the annual cost of the program exceeds the combined budgets of NASA, the Interior Department and the EPA, Politico reports. "And because of a quirk in the budget process for credit programs, the department can add the $21.8 billion to the deficit automatically, without seeking appropriations or even approval from Congress," the report says. In other words, there's nothing Republican deficit hawks can do about this increase in the deficit, further evidence that President Obama's 'go it alone' approach has teeth. Again, there's no free lunch -- Barclays Capital estimates the "pay-as-you-earn" plan will add $250 billion to the deficit over the next decade. But there is a better way, as Jennifer Rogers and I discuss in the accompanying video. In yet another quirk of the student loan crisis, federal student loan borrowers are currently able to consolidate their loans, but not refinance them like a mortgage (or a credit card if you're savvy), as Yahoo Finance's Mandi Woodruff reports.