Posts by Henry Blodget
Henry Blodget at Yahoo Finance 1 yr ago
As regular viewers know, for the past 17 months I have been worrying out loud about US stock prices. Specifically, I have suggested that a decline of 30% to 50% would not be a surprise.
I haven't predicted a crash. I also haven't made a timing call. But I do think stocks will deliver returns that are way below average for the next seven to 10 years.
So far these concerns have just made me sound like Chicken Little. The S&P 500 is up strongly from where I first worried allowed.
That's actually good for me, because I own stocks. And, for the reasons I describe below, I'm still not selling them. But my concerns haven't changed. In fact, as stocks continue to rise, my worries continue to increase. I've described them in detail below, too.
And now, for the first time, I am putting (some) money where my mouth is!
But at some point you've got to put some money behind your analysis.
And the conclusion of my analysis is:
Below, I'll discuss those concerns one at a time.
The CEO of Aetna (AET) recently did something astonishing: He voluntarily gave some of his lowest-paid employees a raise.
He didn't do this because of "market forces." The labor market is weak enough that Aetna could have gone on paying the employees $12 an hour forever.
He did it because it didn't seem fair to have people working so hard for such a profitable and successful company and yet still struggle to make ends meet.
It's too bad more CEOs don't think this way. If they did, the economy would be healthier and growing faster, and most working Americans would be much better off.
One reason the U.S. economy is still weak, after all, is that big American companies are "maximizing profits" instead of investing in their people and future projects.
Big American companies have record profit margins, so they can certainly afford to do this.
The BBC traced Apple's supply chain back to its roots and found that, among other things, tin used in iPhonescomes from dangerous mud mines in Indonesia that employ and kill children and that Chinese people who assemble iPhones work such long hours that they occasionally fall asleep on the job.
These discoveries are startling and depressing. At the very least, they should remind us that the true cost of iPhones is much higher than what we, Apple's rich customers, actually pay for them.
If this really is news to you, though, you've been living in denial.
If you're suddenly appalled at Apple, moreover, you should acknowledge a few things:
None of this is to say that some of the truth about the parts and labor that go into your iPhone isn't depressing and horrifying. It is.
It is also not to say that Apple shouldn't keep trying to do better. It should.
At our company, Business Insider, we had some concerns about the policy. But, on balance, we liked the idea. So, we tried it.
Four years later, it has proven a big--if not unqualified--success.
Three main reasons:
* The policy helps put everyone's focus on the quality and impact of our team's work rather the number of hours they put in
* The policy treats people like the adults they are, giving them more freedom and responsibility to build the lives and jobs they want
* The policy saves a lot of administrative hassle for everyone involved
The policy does require every member of our team to take responsibility for doing an excellent job. They need to communicate clearly and make sure someone else is handling their responsibilities when they're out. They need to create a lot of value for our readers and clients. But they have as much freedom as we can give them to do their work when and how they want. And if they can do a great job while talking a lot of time out of the office, we're happy to have them do that.
I'm an Apple customer and shareholder. I watched parts of the live-stream of the launch yesterday — when it wasn't crapping out. I looked at pictures and videos of the new products. I read some early "takes" on the products.
So it's time to rush to judgment.
And here's my judgment — as a customer first, and then as a shareholder.
My judgment as an Apple customer...
THE iPHONE 6: Yay!
Apple has finally caught up with the rest of the market and launched a smartphone that isn't tiny. I've been a loyal iPhone user for 5 years, and I've been waiting for this particular upgrade for the past two. The faster processor, better battery, and better camera are also appealing to me. Great job, Apple.
THE iPHONE 6 PLUS: Yay!!
APPLE PAY: Cool!
APPLE WATCH: Meh.
My judgement as an Apple shareholder...
I probably should have dumped my excess Apple yesterday, when the stock jumped to $103 in the seconds before the Watch was announced (it then plummeted). I think there's a decent chance that that will be the high for a while.
Make no mistake:
The only Apple product that matters in terms of Apple's financial performance over the next year is the iPhone.
The U.S. economy is still sputtering. Why is growth so slow and weak?
One reason is that average American consumers, who account for the vast majority of the spending in the economy, are still strapped.
The reason average American consumers are still strapped, meanwhile, is that America's companies and company owners — the small group of Americans who own and control America's corporations — are hogging a record percentage of the country's wealth for themselves.
In the past 5 years, American corporations have boosted their profits and share prices by cutting costs (firing people) and buying back stock. As a result, unemployment remains high. And wage growth for the Americans who are lucky enough to be working has been pathetic — the slowest since World War 2.
Meanwhile, America's corporations and their owners have never had it better. Corporate profits just hit another all-time high, both in absolute dollars and as a percent of the economy. And U.S. stocks are at record highs.
Even Scrooge would be appalled.
Many people seem confused by this juxtaposition. If corporations and shareholders are doing so well, why is the economy so crappy?
Let's go to the charts ...
Ultimately, stock prices are determined by supply and demand. When more money is seeking fewer shares, stock prices go up. And vice versa.
So when you're trying to get a sense of what is driving stock prices, it's smart to look at the changing sources of supply and demand.
One big source of demand for stocks in recent years has come from companies buying back their own shares. These buybacks have not just provided extra demand — they have decreased the total supply of shares available. So the buybacks have shifted the supply-demand balance and helped drive stock prices higher.
One important point is that corporations usually make the same mistake in buying back their own stocks that many investors make: They buy most aggressively late in bull markets when stocks are about to fall. And then they stop buying when prices plunge and their shares are actually cheap. In so doing, in other words, they squander shareholder capital.
But that's a different story.
More from Yahoo Finance
Apple (AAPL) reports earnings Wednesday after the market close. Wall Street is not expecting particularly impressive results. The focus of most Apple investors appears to be on the new products Apple is expected to roll out in the second half of this year.
And those products are indeed critical for the company and its stock price.
A few years ago, Apple was one of the greatest growth stories in the stock market. For more than a decade, the company astounded Wall Street with one smashing quarter after another. Eventually, Apple's lead in smartphones and tablets seemed insurmountable, and Apple's stock price soared above $700 per share.
But then the premium smartphone market hit maturity, and smaller, cheaper tablets began to gobble up more and more market share.
And now Apple is no longer a growth company.
Why has Apple stopped growing?
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Editor's note: This post originally appeared on Business Insider.
Financial markets are on edge Friday morning after yesterday's bloodbath in momentum stocks.
On Thursday the Nasdaq suffered its worst one-day decline since November 2011 and is off 7% from its March high; the Dow and S&P 500 are down about 3% from their highs.
Some signs suggest that this pullback — or another one sometime soon — could get much more severe. Why?
Three basic reasons:
Let's take those one at a time.
Even after the recent drops, stocks appear to be very expensive. Does a high PE mean the market is going to crash? No. But unless it's "different this time," a high PE means we're likely to have lousy returns for the next seven to 10 years. So that's price. Next comes profit margins.
And then there's Fed tightening.
Related: Short-term interest rates likely to stay near zero for 2 more years: David Kotok
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