Posts by Michael Santoli
- Michael Santoli at Yahoo Finance2 days ago
Never mind Hong Kong protests, Pimco’s palace intrigue or violent clashes in the Middle East. The crucial influence on our markets now is what investors are willing to pay for junk.
The high-yield, or junk bond, market has been the pounding heart of the bull market, pumping the cheap liquidity created by central banks through the corporate economy, attracting billions from income-parched investors, enabling generous corporate share buybacks and making stocks look attractive in comparison.
That’s why the recent bout of nervous selling in high-yield debt has got the stock market fibrillating in the six trading days since the Standard & Poor’s 500 index hit an all-time high a week ago Friday.
The junk-bond spread is the amount of extra yield investors demand above Treasury securities to compensate for the risk lower-rated issuers might default. This spread, while still quite tight versus history, weakened to its widest levels of the year Friday, according to bond strategists at RBS. At 4.62 percentage points above comparable Treasuries, the spread was up substantially from 4.08 points at the end of 2013.
- Michael Santoli at Yahoo Finance6 days ago
Are we seeing a buyback backlash?
At some point in the latest phase of the half-decade-long corporate stock-buyback binge, general opinion of the practice turned from approval to exasperation. The strain of commentary toward heavy stock repurchasers has gone from, “Well, at least they won’t do much harm,” to “Stop eating yourselves alive and do something to feed the rest of the world.”
The official line on share repurchases from companies was always that it represented a prudent use of excess cash — a tax-sensitive way of returning capital to those investors who wished to sell, while avoiding risky or unprofitable new spending projects. When economic growth is tepid and lending rates are low, the math of using cash on hand or borrowing at, say, 3% to produce effortless per-share earnings growth in excess of the debt cost can look like a no-brainer.
In the early 2000s and again in the years right after the Great Recession, this fit with the general view of investors — even if some always grumbled that this steady absorption of shares was cosmetically goosing per-share earnings and “artificially” supporting stock prices.
- Michael Santoli at Yahoo Finance6 days ago
Go get checked out for a recurring ailment and the doctor is likely to ask if it feels similar to the last flare-up and how much it hurts in comparison. The symptoms the stock market is suffering from this week strongly resemble those from the July-to-August decline, though the pain inflicted is not quite as bad (yet).
The current pullback is still a couple of percent shy of the ultimate midsummer decline, which itself was a harrowing but relatively mild setback for a market that hasn’t been hit by as much as a 10% drop in three years.
As in July, the headline equity indexes – Standard & Poor’s 500 and Dow Jones Industrial Average – are undergoing a “catch-down” move toward small-cap and high-yield credit markets that have been under pressure for weeks.
Even as the S&P 500 made a new intraday high of 2014 on Friday (prompting some reflection on the bull market’s progress here), the number of stocks propelling the advance was rather thin. And the small-cap Russell 2000 – a pronounced laggard all year – was not invited to the new-high celebration.
- Michael Santoli at Yahoo Finance12 days ago
Nine months ago it seemed a prediction that was bold and unimaginative all at once: That the Standard & Poor’s 500 index would claim for itself the theatrical moment of reaching the 2,014 level in the year 2014. Now this unyielding bull market, after a few nervous stutter steps, has made it happen.
The S&P 500 touched this level Friday morning. It got there on the day the instant megacap Alibaba Group (BABA) debuted in a culmination of the easy-money, China-emergence and e-commerce market themes, and in the week when investors were, yet again, reassured for the moment that the Federal Reserve remains inclined to move slow in sunsetting its easy-money policies.
- Michael Santoli at Yahoo Finance14 days ago
On a day when Wall Street is in suspense over details of the Federal Reserve’s exit strategy, China’s central bank showed it isn’t going anywhere when it comes to stoking its slowing economy.
The People’s Bank of China overnight injected a fresh 500 million yuan, the equivalent of $81 billion, into its top five banks, in a bid to boost market liquidity and forestall further sluggishness in the country’s economic performance.
The global financial markets reflexively popped a bit higher on the move, with stocks in China rising by half a percent and commodity prices bouncing. The Shanghai stock market is up more than 15% since its March low despite generally soft Chinese economic numbers, so perhaps investors were already expecting further stimulative action.
Economists at Barclays point out that while this cash infusion is the equivalent of a half-percent cut in the short-term funding rate for banks, it appears a short-term measure to lubricate stressed lending markets rather than an all-out economic stimulus effort.
- Michael Santoli at Yahoo Finance14 days ago
No company is too old, too big or too revered to be spared the attack of activist investors these days.
Wall Street’s leading breakup artist is fed up with what he says is bad chemistry at DuPont (DD) and wants the 200-year-old company and 80-year member of the Dow Jones Industrial Average (^DJI) busted apart.
- Michael Santoli at Yahoo Finance16 days ago
It happens in every bull market. As the stock market stretches skyward, the do-it-yourself industry gets aggressive, creating new products to make investing seem quick, easy and cheap.
In the ‘90s it was low-commission online brokers that spread the get-rich-at-home dream. And in the early 2000s bull run, the exchange-traded fund complex exploded, packaging all sections of the market into cheap little baskets.
Lately, a fast-growing class of so-called robo-advisors such as Betterment.com, Wealthfront and Personal Capital has made a splash with low-fee asset-allocation through software.
To Nick Stuller, CEO of AdviceIQ and a founding sponsor of National Financial Advisor week now beginning in New York, this means individuals need to re-learn the value of having a human financial advisor to “look you in the eye” and help build a comprehensive family financial plan.
Like the debate over active-versus-passive investing, the argument about whether professional financial advice is worth paying for won’t ever be settled.
- Michael Santoli at Yahoo Finance19 days ago
Some people will buy a house if that’s the only way to get at an oil well underneath it. The same logic can drive pay-dirt-hunting investors to buy into a company they’re indifferent to, purely as a way to play another business it owns.
As Wall Street excitedly awaits the near-$24 billion Alibaba Group initial public offering next week, traders have been bidding up shares in two big tech companies with hefty stakes in the Chinese e-commerce megalith: Yahoo Finance parent Yahoo Inc. (YHOO), which owns 22%, and Japan’s SoftBank (SFTBY) conglomerate, which holds 34%.
While Alibaba represents a larger proportion of Yahoo’s market value due to SoftBank’s greater heft, the two stocks are up a similar mid-teens percentage since Aug. 12, when Alibaba streamlined its corporate structure to facilitate the IPO and set a schedule for the marketing and pricing of its shares.
- Michael Santoli at Yahoo Finance22 days ago
Back in 2012, an investor posted a bearish write-up on the shares of organic-food maker Annie’s Inc. (BNNY) in the members-only Wall Street online idea-sharing forum Value Investors Club.
After setting out the case that Annie’s was overvalued, the poster then detailed a scenario that represented a key potential risk of betting against the trendy stock: “Some massive food producer with flagging revenue growth desperately overpays for BNNY in a few years after BNNY has managed to more or less execute on their growth plans.”
That’s exactly how it went down – or, rather, went up – as General Mills Inc. (GIS) agreed to buy Annie’s late Monday for $820 million in cash, or $46 per share.
Slamming the shorts
- Michael Santoli at Yahoo Finance23 days ago
Baby Boomers and television came of age together and sustained one another through their prosperous prime. Will Boomers and TV as we know it die together, too?
New analysis of television viewing trends shows the TV audience is aging much faster than previously believed, as Americans under the age of 50 turn away from network programming, even when DVR-captured delayed viewing is included.
Media analyst Michael Nathanson of MoffettNathanson Research says the median age of the TV audience in the 2013-14 season rose 6%, or 2.5 years, to 44.4 years, from four years earlier. In the past five years, he says, the age of the typical TV viewer has advanced 5% faster than that of the average American. (The 2012 U.S. Census report has the median age of the American population at 37.2).
This “ratings-weighted average age” has climbed by 7% in the past few years among broadcast networks, to 53.9 years, and 8% for cable networks, to 40 years.
Tablets and time-shifting