Posts by Michael Santoli

  • After two years, 'relentless rally' needs a new story to keep it going

    Michael Santoli at Yahoo Finance 2 days ago

    Light a couple of candles and sing for the “relentless rally,” the tireless gain-without-much-pain phase of this bull market, which has added $8 trillion worth of U.S. stock-market value since it began two years ago.

    Sure, this bull market dates back five and a half years to the March 2009 climax of the financial crisis. But it was in mid-November of 2012, just after the election, when the character of the advance changed.

    Investors at that point stopped expecting a crisis relapse with every sunrise, the economy moved out of intensive care and into recovery mode, Washington was stalemated to the point of irrelevance and central banks continued delivering easy-money medicine to an economy that decreasingly needed it.

    As a result, markets re-embraced risk, stock prices started rising faster than corporate profits and companies turned toward aggressive deal making. This, I’ve called the “liftoff phase.”

    Tailwinds pick up behind the U.S. consumer

  • Obama “decree” on immigration sets up 2015 showdown: Steve Forbes

    Michael Santoli at Yahoo Finance 2 days ago

    President Obama’s plan to extend broad protections to undocumented immigrants by executive order will antagonize the Republican Congress and drive it to act on its own to pass more targeted reforms next year, says former GOP presidential candidate Steve Forbes.

    “The president is going to try to rule by decree instead of in a Constitutional way of actually having the approval of Congress before you do these things,” Forbes says in the attached video. “I think what that sets the stage for is next year, the GOP Congress will pass reforms like removing caps on H-1B visas for high tech.”

    American technology companies avidly want an expansion of this visa program, which enables foreigners with specialized skills to work legally in the U.S. for a period of years. Forbes also advocates loosening rules to allow non-U.S. citizens who come to American universities for advanced degrees to be allowed to stay to work here.

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  • Can Bill Gross's $290 million bonus from Pimco be justified?

    Michael Santoli at Yahoo Finance 8 days ago

    The report that bond-fund giant Pimco paid its co-founder and now-exiled investment chief Bill Gross $290 million in 2013 triggered an immediate and unsurprising rush of awe and head-shaking Friday.

    Such a profusive pay package, reported by financial advisor and blogger Barry Ritholtz in his Bloomberg View column, came in a year when Gross’s flagship fund was lagging its peers and his management style caused enough friction for him to bolt for a startup fund at Janus Capital Inc. (JNS) in September.

    This provided an ideal setup for outrage over finance big shots being paid obscenely for weak performance and bad behavior, such as Gawker’s sarcastic take: “ Everybody knows that the financial world is the purest example of pay accruing to winners solely by merit.”

    Yet there are a few subtler takeaways that might be of more lasting use and interest to investors:

     

  • Buffett's deal to buy Duracell a win for everyone -- except the IRS

    Michael Santoli at Yahoo Finance 9 days ago

    If you are lucky enough to be sitting on a huge profit in a stock, the decision is either to hold on in hopes it continues to climb, or sell and pay taxes on the gain.

    If you are even luckier and happen to be Warren Buffett while owning a heavily appreciated stock, there is a third sweet option: Swap the shares back to the issuing company tax-free in exchange for a choice asset and some cash.

    For the third time this year, Buffett executed such an enviable maneuver when he exchanged his $4.7 billion worth of Procter & Gamble Co. (PG) shares for P&G’s Duracell battery division and $1.7 billion in cash.

    Buffett’s Berkshire Hathaway Inc. (BRK-A, BRK-B) came by its P&G position through Buffett’s longtime ownership of Gillette, which acquired Duracell in 1996 before Gillette sold itself to P&G in 2005. P&G is in slim-down mode and recently announced it was considering shedding the Duracell unit.

     

     

  • A new Hollywood toy story? Hasbro in talks to buy Dreamworks Animation

    Michael Santoli at Yahoo Finance 9 days ago

    Transformers were a 1980s Hasbro Inc. (HAS) toy craze that has been parlayed into a megabucks action-movie franchise in recent years. The “Penguins of Madagascar” is set to hit theaters this Thanksgiving from DreamWorks Animation Inc. (DWA) as action figures of its glib penguin characters hit stores ahead of Christmas.

    This symbiotic relationship between kids’ playthings and kids films forms the core rationale behind the reported interest by Hasbro in acquiring DreamWorks Animation.

    Related:'Frozen' Tours to Norway Take Off as Film Tourism Reaches a Fever Pitch

    The New York Times is reporting that the companies are discussing a deal, with Dreamworks Animation co-founder and CEO Jeffrey Katzenberg said to be seeking more than $30 per share, at least a 35% premium to Wednesday’s closing price, which would value the company above $2.5 billion.

     

  • A final purge to $700? What gold bulls' surrender might look like

    Michael Santoli at Yahoo Finance 11 days ago

    To some, it’s the only true money; to others a near-useless mineral. Which means that gold is always carried along currents of investor emotion. 

    So when - at what price – might gold’s fans feel sufficiently demoralized by its relentless decline to surrender in a climactic selling purge?

    With gold near $1,160 and down around 40% from its 2011 high above $1,900 per troy ounce, the gold bulls’ most ardent arguments have dissipated or even been discredited: Inflation is dormant, the U.S. dollar on the rise, the federal government is solvent and modern civilization abides.

    At this point in a bear market, attention turns toward anticipating what “capitulation” might look like – that phase when remaining loyalists surrender hope and liquidate in disgust.

    This is the kind of climactic market washout that is only ever clear in retrospect. But while there are inklings that gold has fallen far from favor among traders, if a comprehensive capitulation is to finish this move it hasn’t nearly happened yet.

    Of course, a rapid move below $1,000 for gold would mean serious additional pain and a further loss of at least another 15%.

       

  • Will a big post-election rally lead to a final bull-market fling?

    Michael Santoli at Yahoo Finance 15 days ago

    Wall Street wants to let you in on a sure thing -- a simple trick to grabbing easy gains in the market, using nothing more than a calendar. Who could resist?

    No quantum of market data has been passed around more actively in recent weeks than the fact that the year following midterm elections has been positive for stocks every time since 1950. What's more, in the sixth year of a president’s term, such as the current one, the market’s rise has been steep in the six months following the election.

    This reassuring snapshot of the historical record has market pundits treating further upside as a forgone conclusion. And investors seem to be listening: Bank of American Merrill Lynch calls the $37.5 billion in net new flows into stock mutual funds “huge,” which stands as the biggest two-week surge since October 2013.

    Any outcome viewed as a no-brainer by such a crowded consensus is begging for some skeptical scrutiny. And as it turns out, pulling apart the numbers leads to a more ambiguous conclusion.

    The main takeaways:

    -The election-year pattern relies on a rather small sample size.

  • Tesla can’t make enough cars to meet demand – and Wall Street cheers

    Michael Santoli at Yahoo Finance 16 days ago

    The long-term limits on global energy supply is what impelled founder Elon Musk to create a line of high-performance, longer-range battery-powered cars.

    The relative scarcity of Tesla shares, with a quarter of the company still in Musk’s hands, has helped push up their price 675% the past two years as excitement grew over the vehicles’ long-run promise. (That same scarcity has sometimes made it hard for skeptics to find shares to borrow and sell short, making it a rather jumpy stock all around.)

    But the scarcity freshest in investors’ minds following the company’s quarterly report Wednesday night is of Tesla’s cars themselves, which at the moment are desired by the public beyond the pace at which Tesla can deliver them.

    That Tesla still struggles to meet demand for its electric cars even as gasoline prices have crashed to a four-year low in the U.S. is a testament to the unique market position Tesla enjoys.

    Yet Musk emphasized that these modest shortfalls have nothing to do with flagging demand for the Model S sedan, the car now in production, but with factory retooling and the ongoing engineering challenge of scaling up manufacturing as rapidly as it has hoped.

  • Alibaba joins Facebook, others downplaying cost of employee-stock grants

    Michael Santoli at Yahoo Finance 17 days ago

    When Alibaba Group (BABA) delivered its first quarterly report as a public company Tuesday, the headlines flashed per-share earnings of $1.1 billion, or 45 cents a share, up 15% from a year earlier and right in line with the consensus of Wall Street’s enthusiastic analyst corps.

    Yet these upbeat numbers excluded some $490 million in expenses from Alibaba stock given to employees as part of their compensation. This stock-based compensation expense made up the vast bulk of items excluded from Alibaba’s preferred “adjusted” profit measure.

    The Chinese ecommerce giant’s profit based on standard accounting principles was $494 million, or 20 cents per share, less than half the figure featured and celebrated.

    In this way, Alibaba fits right in with its American peers among Internet companies, which promote adjusted earnings measures excluding equity compensation costs to flatter their results in a way that companies in most other industries don’t even attempt.

    Back to the ‘90s

    There have been two main explanations offered by those who believe it makes sense, or at least is not a problem, to exclude stock-compensation expense.

     

  • Michael Kors' insiders bailed out before retailer's Q3 miss

    Michael Santoli at Yahoo Finance 18 days ago

    Is Michael Kors Holdings (KORS) running out of runway? 

    A fashion and Wall Street sensation in recent years, the accessories-and-apparel company reported an impressive 40% jump in quarterly profits, but squandered investors’ favor with a steep slowdown in same-store sales and a relatively downbeat outlook for the current quarter.

    Kors shares, which had quintupled from their $20 IPO price in December 2012 to an all-time high near $100 in February, were already down more than 20% from that peak before Tuesday’s report and were knocked for a further drop of 8% to beneath $72.

    As discussed in the attached video, there is nothing untoward about a longtime investor cashing in on a fabulously successful position. Yet it underscores the importance of watching what savvy insiders do with their shares in a highly valued company.

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