Blog Posts by Matt Nesto

I like to call them the disaster du jour. It's when a particular stock gets crushed after missing analyst expectations or gets slammed for perhaps sounding more cautious than optimistic in giving its purview of the future. As jarring as these double-digit dips are for existing shareholders, they can also be pure gold for investors who are quick enough to react when they think the punishment does not fit the crime.

"Whether they miss here or miss there, that's not going to change the arithmetic of how they create value for investors over the long term," says Martin Leclerc, managing partner at Barrack Yard Advisors of IBM's (IBM) recent 10% post-earnings dive.

In the attached video, Leclerc explains that while he hasn't bought IBM yet, "it's very much on our minds," pointing out that the company's strong cash flow and a share count that's fallen 40% in a decade are the real "driving force."

On Wall Street, much is made over the difference between leading and lagging indicators, but investors of all sizes are clearly prefer the former. It's part of the reason why this morning's weaker than expected first quarter GDP report was a disappointment, but not enough to send traders rushing for the exits.

''I think what it indicates is that the economy is sort of muddling along," says Martin Leclerc, managing partner at Barrack Yard Advisors, of the 2.5% growth figure for the first three months of the year. "It (GDP data) can create a buying opportunity or a selling opportunity, but what happens with the real economy sometimes doesn't translate into what happens with asset prices."

And since this is only the first of what will likely be three very different readings of the same data point, it makes it even easier for investors to get over it, so to speak, and stay the course. That's because the general idea that the economy is slowly improving from Q4's dreadful 0.4% pace, is still intact.

For Leclerc, a value investor who shops globally, the weakness in exports confirms a well established fact that things are soft overseas. But that's not always a bad thing, he says, when you're job is to find good companies at great prices.

In the dead of winter, three long months ago, the buzz on Wall Street was about the great rotation. This budding super-trend was not only calling for a massive movement of money out of bonds and into stocks, but was also being used as a crutch to justify otherwise inexplicable gains in the market.

Today, there's another rotation underway, only this time the money flow is moving out of defensive sectors and into cyclicals and other industry groups that have been lagging. It's a sudden shift in sentiment that Miller Tabak's Jonathan Krinsky calls, "the other great rotation," and a trend that could prove to be just what's needed to drive stocks to fresh highs.

And according to Peter Kenny, managing director at Knight Capital, as much as earnings season has been "lumpy and uneven with extremes on both ends," it is also fueling the movement of money.

"Earnings and guidance are helping that rotation out of the defensives and into the more risk-oriented or growth-oriented or alpha-oriented issues, and away from the Dow 30," he says in the attached video. He notes even small and mid-cap stocks are beating the Dow Industrials now too.

For those of you looking for a reason to get excited about the first quarter GDP report due out Friday morning, perhaps nostalgia may be just the hook you need. That's because it will mark the final economic measurement done before the government's Bureau of Economic Analysis rolls out newly calculated data in July.

"People just take the GDP number and run with it, without really looking into the details," says Peter Kenny, managing director at Knight Capital in the attached video. "It is a very complex number."

Officially, Kenny and other market watchers and economists are looking for tomorrow's report to show GDP recovering to 2.8% in the first three months of the year, from what he refers to as "stole mode" in the fourth quarter amidst election and fiscal cliff worries.

"If you look at the markets and broader indexes, they're really pricing in some fairly significant earnings power and guidance," he says of the anticipated uptick in activity.

This self-described ''old school" analyst finds the whole thing a bit Orwellian and conspiratorial. Thanks to the inclusion of the value of such ''intangibles" as intellectual property, research and development, and the creativity of artists and scientists, our economy will magically be 3%, or about $450 billion larger, when the next numbers come out in July.

As we move deeper into the second quarter, the realities of summer and all the seasonal trends that go with it begin to come into focus. For many of us, warmer weather means vacation time. And even though the broader economy continues to grind along in low gear, don't be surprised to see higher prices and fewer vacancies when it comes to booking your next trip because the tourism business is heating up.

"It's really an amazing number," says Nick Colas, chief market strategist at ConvergEx Group, of the double-digit growth that vacation destinations like New York and San Francisco are experiencing. "Especially considering the still very sluggish economy and employment picture," he adds.

In fact, he says in New York alone, hotels are running at 85% capacity --a pace that he describes as "the level at which they have to start adding rooms." And they are. Colas says more than 36,000 rooms are "coming on line" in New York in the next couple years to accommodate the influx.

If you're wondering why this is happening, Colas explains in the attached video that there are a few good reasons.

"We're still seeing a lot of European inbound tourism," he says, adding that there's a lot more domestic tourism as well. "Americans are effectively staying home a little more and Europeans are coming over a little more, and the combination is driving a lot of volume."

Unlike the stock market, which is setting at record highs, the housing market has yet to recover from the depths of the last recession. While real estate sales and prices are trending higher and are clearly better off than they were a few years (or even months) ago, a full recovery is still far off.

That's not necessarily a bad thing, since it gives more people more time to take advantage of still low prices and interest rates. Nor is it a good thing, since it means as much as one-third of current homeowners are still underwater with their mortgages (eg. they owe more than the property is worth).

But with prices up, inquiries on the rise, and the spring selling season in full gear, it remains to be seen how this uptrend will play out.

For this installment of Investing 101, Shari Olefson, noted real estate attorney and author of the new book Financial Fresh Start, walks us through the basics of renting versus buying when it comes to making the investment of a lifetime.

1) Follow the "Rule of 15"

Before you make the decision to rent or buy, Olefson offers this rule of thumb: "If you can buy a home in your area for less than 15-times what your annual rent is, than financially it makes much more sense to buy than to rent."

For example, if you pay $2,000 a month in rent (or $24,000 a year), she says the basic buy-rent cutoff price would be $360,000.

One of the great mysteries of the whole easing era — the past five years of unprecedented intervention and activism orchestrated by Fed Chairman Ben Bernanke — is that it hasn't led to rampant inflation...at least not yet.

While economists routinely strip out food and fuel when they look at pricing data to derive what they call a "core" figure, even the all-in figure has been eerily benign lately. The March consumer price index, or CPI, just released this morning, showed a 0.2% drop. But within the data, food prices remained flat, while the prior report showed a 1.6% increase in the food index over the past 12 months.

This "paltry" increase in food prices got Nick Colas, chief market strategist at ConvergEx Group, thinking. What if the items in the government's basket were different than what real consumers actually buy?

As Colas explains in the attached video, so-called "shopping cart inflation" is anything but benign.

"The things that people most commonly shop for are increasing in price much more quickly than that CPI basket inflation number we're used to seeing," says Colas, singling out the spike in staples such as lettuce (+24%) and apples (+11%) in a recent note to clients.

Part of the problem, he says, is due to the drought last summer. While that might seem like old news at this point, Colas says it will "have a very long shadow" on food prices this year, as the ripple effect from costlier corn and grains makes its way through animal feed and on to meat prices.

If you are lucky enough to be holding a basket of Health Care stocks (XLV) that are up 20% so far this year, it is highly likely that you would be looking for ways to preserve those gains in the face of a market that's at all time highs and on track for a sixth consecutive month of gains. The same can be said for holders of the other defensive sectors too, as Consumer Staples (XLP), Utilities (XLU) and the Telecom sector have all outperformed the S&P 500 (^GSPC).

"That was sort of the main theme of the first quarter," says Jonathan Krinsky, chief technical market analyst at Miller, Tabak, in the attached video. "But as we head into the 2nd quarter, I think if we are going to see this rally continue, inevitably investors are going to lock in some profits on what has worked, and look for some areas that may be setting up for the next leg."

While this type of rotation, or pruning and replanting, is normal following a strong uptrend like the one we are currently experiencing, Krinsky says the list of laggards from which to chose is dominated by Materials (XLB) and Technology (XLK). And of these, he says the latter is the better choice.

"I think tech is an area that could see that rotation in the 2nd quarter," he says, pointing out that materials and commodities are under pressure now. He's also weary of a seasonal selling trend that dates back over 30 years.