Stocks & Equities

Rosenberg Roasts The Roundtable Of Groupthink

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Posted by Zerohedge.com

on Monday, 23 April 2012 14:51

It appears that when it comes to mocking consensus groupthink emanating from lazy career 'financiers' who seek protection from their lack of imagination and original thought, 'creation' of negative alpha and general underperformance (not to mention reliance on rating agencies, only to jump at the first opportunity to demonize the clueless raters), in the sheer herds of other D-grade asset "managers" (for much more read Jeremy Grantham explaining this and much more here), David Rosenberg enjoys even more linguistic flexibility than even us. Case in point, his just released trashing of the latest Barron's permabull groupthink effort titled "Outlook: Mostly Sunny." And just as it so often happens, no sooner did those words hit the cover of that particular rag, that it started raining, generously providing material for the latest "Roasting with Rosie."

From Gluskin Sheff:

Consensus Creates A Contrary Call

    When the experts and forecasts agree, something else is going to happen."

    Bob Farrell's investment rule #9.

Did the folks at Barron's intentionally lob a ball right into my wheelhouse? The front cover says it all — Outlook: Mostly Sunny. Check it out. Any perma-bull out there right now should be trembling by the front cover effect. This is no different than the fabled Death of Equities in the 1979 Businessweek, the Economist front cover calling for oil prices to basically head towards zero circa 1998, and the front cover of Barron's a decade ago saying That's All, Folks when it came to interest rates supposedly bottoming out. Come to think of it, Barron's ran with Dow 15,000 on its front cover back on February 13, 2012, and last we saw, at the nearby peak in early April, the blue-chip index closed 1,700 points below that threshold (and has been roughly flat since the date of that article).

What Barron's is referring to here is the latest Big Money poll that it conducts semi-annually. The actual title of the article (on page 25) is Reason to Cheer. Reason to cheer? About what? Margins being squeezed? Profit growth practically evaporating? Earnings downgrades still significantly outpacing upgrades? The recovery so excruciatingly slow that senior members of the Fed are contemplating QE3? Insolvency of Spanish banks? Hard landing risks in China? The 2013 fiscal cliff? The fact that over 60% of the data in the past two months have surprised to the downside?

The results of the Big Money Poll were startling:

    55% of the portfolio managers are either bullish or very bullish. Only 14% are bearish or very bearish.
    Financials and technology are the favourites, with 31% citing both as being the top performers in the next six to 12 months.
    Favourite stock ... Apple (surprised?).
    Utilities are seen as the worst performer — by 30% of those polled.
    With respect to Treasuries, 81% are bears, just 2% are bulls. How can yields rise in such a lopsided environment? I mean, who is there left to sell? This is a classic bullish contrary signpost.
    Bonds of all types are detested — 33% bearish on corporates while 14% are bullish; 35% are bearish on munis while only 12% are bullish.
    But ... 41% are bulls on real estate; only 10% bears are left.
    For gold, 39% bears and 30% are bulls. That is great— the one asset class that has been in a secular bear market for 12 years is adored (equities), and the two that have actually made you money over this time span (the bond- bullion barbell) is to be avoided. Go figure!


david rosenberg2


Stocks & Equities

Facebook Snaps a $1-Billion Photo

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Posted by Alex Daley- Casey Research

on Friday, 20 April 2012 07:36

By Alex Daley, Chief Technology Investment Strategist

"What made Instagram worth $1 billion to Facebook?"

When asked this question recently, I responded with an immediate, "Nothing."

I'm not usually so terse or emphatic with my answers, as any longtime reader knows. But in this case, there really was nothing inherently valuable inside Instagram that made them worth the unbelievable sum Facebook agreed to pay. Yet they did it anyway. Clearly, there's something missing from a traditional valuation analysis here.

That missing piece is what Instagram could have become in the hands of a competitor or even on its own, had Facebook not gone ahead with the marriage. Nearing its IPO, Facebook was willing to overpay in order to quash any potential risks that Instagram posed, both to the company's reputation and its content stream.

Instagram by the Numbers

On the surface, Instagram might look like small potatoes. It has only one product: an application for smartphones that can take square, Polaroid-style throwback images, run them through a few cool filters to make them look snazzy, and share them with other users. Even though it has some sharing capability built into its own app, the overwhelming majority of photos are instead posted to Facebook (or Twitter or Posterous or other social network) with the app's simple integration.

There is no magical computer science involved. The app – minus some intricacies that allowed it to scale to millions of users without buckling under its own weight – is simple enough that most any solid mobile developer could have thrown it together. This is not to dismiss the hard work the twelve-person company put into it – I am sure many late nights were spent on the finer details, squashing bugs, and the like – but it's not exactly a fighter-jet simulator or climatology model. Facebook obviously didn't want the company for its cutting-edge patents, code, or other intellectual property.

So maybe it had to do with the user base? True, the application is insanely popular, having been downloaded more than 30 million times according to the App Store statistics from Apple, and another 5 million on Android. (Of course, Apple and Google have it in their best interests to overcount those users, by including updates, reinstalls, upgraded phones, etc. But it is the best proxy we have, and we can reasonably assume Instagram still had tens of millions of users.) Plus, it was named "application of the year" by Apple for 2011, which was bound to further boost its appeal and draw in new users.

But Facebook already counts 850 million registered users, according to its most recent press releases. Even adding 30 million to that number would cause barely a ripple. And given that the most popular use of the application is to upload to your existing Facebook account, we doubt that it will bring many, if any, new users to Facebook. This was not about adding instant market share.

Nor did the two-year-old Instagram bring much in the way of revenue to the table. In fact, the company has no revenue stream at all; it was living off of $7 million in venture capital funds it managed to raise on the back of its early success, having garnered 1.75 million downloads just four months after its launch. (The product, by the way, was built on just $500,000 in seed funding pre-launch.)

No revenue, little money in the bank… you might think a company like that would come cheap. That instead, Facebook believed it justified a $1-billion pricetag tells us that Facebook values the company for something more than Instagram's application, audience, or earnings.




Stocks & Equities

Perspective: Stocks Commodities Currencies Credit Markets

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Posted by Bob Hoye - Institutional Advisors

on Wednesday, 18 April 2012 11:01


The stock market is included in the orthodox calculation of Leading Indicators. Problem is that at the end of a great financial bubble, such as in 1929 and 1873, the recession started virtually with the collapse of speculation, which was also the case in 2007. This is one of the features of a bubble and its collapse. Stocks peaked in October 2007 and the recession started in that fateful December.

Essentially, both the stock market and the economy recovered when the panic ended in March 2009. We have thought that the relation would continue such that the first business expansion out of the crash would end with the end of the first bull market. It should be admitted that we had thought that the US expansion would end with the commodity-high of last April. Usually we leave the discussion about recoveries and recessions to the cult of economics, but sometimes it's worth a try. After all, the NBER typically determines the start of the recession – one year after the actual start.

Naturally, we can't help but wonder if the life that recently came into the economic numbers will turn down with the stock market – with little delay. Taking out 1340 on the S&P would set the downtrend. What would set the downtrend in GDP?

A couple of weeks ago central bankers were comfortable that stimulus and fixes had – well – fixed things. No more easing was required. Then, this week's hit to the markets seems to have dislocated policymaker confidence such that Bernanke had to state that he would not raise administered rates.  Our view has been that it has been market forces that have lowered such rates. In troubled times conservative funds go to the most liquid items and they are short-dated instruments in the senior currency and gold. This drives the former down in yield and the latter up in price.

The swing in Fed opinion reminds of Tokyo at its extraordinary peak at the end of 1989. Speculation was radical and policymakers were trying to talk the action down – which is always impossible because such speculation will run to collapse. With the initial break in the Nikkei, policymakers became nervous and talked about lowering margin requirements. Shortly after the top of a bubble??? Japan's subsequent contraction has been one for the history books.

Our "new financial era" recorded a number of cyclical speculative thrusts and cyclical bear markets until a classical bubble was accomplished in 2007.  Despite easing that exceeds the determined efforts by the Fed at the start of the post-1929 contraction, 

financial history remains on the typical post-bubble path. One could even say that central bankers have been extremely belligerent in attacking the normal forces of contraction.

However, sovereign debt markets are saying that it is not working well. An updated chart on the "Spanish Fandango" follows.


With the break in overall confidence, the long bond jumped almost 5 points in three trading days. Junk, high-yield bonds, and sovereign debt sold off.  The sub-prime which had rallied from 38 in October to 52.5 in February has slumped to 47.4. The chart has broken down and the target is the 38 of last October.  Municipals are close to ending their test of the highs in February.

This year's seasonal reversal to widening in May could lead to very unsettled credit markets later in the year.

The long bond was oversold and the bounce has corrected this condition and the price is likely to drift down to test the low.

Action in lower-grade stuff has not been healthy, and an economist at an orthodox place (IMF) has discovered that there is not enough collateral behind all of the debt. In Victorian times this was called "over trading" and today its "leveraging". No matter what the term, it is always followed by liquidation or in today's terms "de-leveraging". The next stage could inspire articles that it is impossible for the world's economy to generate enough income to service the debt burden.

There will be plenty of opportunity for a "new" wave of young economists to point out the glaring blunders of the ancient and "barbarous relic" of interventionist economics.


Base metals and crude oil declined enough to prompt a rebound with the Fed turning on the speculation switch again. Neither were oversold enough to set an intermediate bottom. Natural gas got headlines in declining below $2.00, but it is not as oversold as at the 2.23 low in January. Also, late April often sets a seasonal high.

Agricultural prices suffered a hit last week, but not enough to break the chart out of the narrow trading range. Coffee clearly needs a jolt as it has given up most of the huge gain to April last year. It seems that the sector is being keep together by strong action in soybeans and soybean meal. These are becoming rather overbought at close to last year's highs.

After mid-year, adverse credit spreads, a slowing global economy and a firming dollar could trash most commodities – again. The chart shows three "over-boughts" – at 474 in 2008, 370 last April and at 326 in February.


Bernanke renewed his vows to depreciate the dollar, which brought the DX back into its trading range. However, this is still within the pattern leading to a significant advance. 

Getting above overhead resistance at 81 could set the launch button. For day-traders May is a long time away, but for investors it is nearby and could record a reversal in credit spreads and forex markets.


Signs of the Times:

We ran "Boom Sayer" exclamations for four weeks and considering the nature of volatility it is reasonable to conclude that current excesses will eventually be followed by "Doom Sayers".

But, let's not be hasty – usually the next step from complacency is "Ooops!".

And that might have begun with this week's discovery that the "fix" on Euroland debt won't last as long as even the shorter maturities become due.


This Year

"The biggest wave of state-and-local government debt refinancing in two decades is helping fuel the longest winning streak for municipal bonds since 2007."

– Bloomberg, April 2

"Taxable municipal bonds are poised to extend their best rally in 18 years."

 – Bloomberg, April 4

"Across the Eurozone, and beyond, hedge fund managers are now pointing to 'significant' pricing anomalies not seen since 2008."

– Bloomberg, April 6

"JP Morgan trader of credit-derivative indexes [linked to the health of corporations] has amassed positions so large that he is driving price moves in the $10 trillion market."

– Bloomberg, April 6

Of course, these preceded Tuesday's setback, but their significance is that there is considerable speculation in credit markets. As we have been noting, favourable trends in corporate spreads ended in February. This could reverse to widening over the next four to six weeks.

As we have been noting, "Boom Sayer" exclamations from March and April last year were remarkably similar to this year's list. The best of last year's have been published and, essentially, they ended in April, which suggests a pattern.

Stock market action in both years set a momentum high in February with positive sentiment recorded in March and April – accompanied by bullish raves.

This week saw some "sudden" exclamations of dismay. Does it indicate a new trend?



Link to April 13 ‘Bob and Phil Show’ on TalkDigitalNetwork.com:




Stocks & Equities

While You Where Sleeping

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Posted by David Rosenberg : Gluskin Sheff

on Tuesday, 17 April 2012 08:07

  • Its a broadly mixed start to the day. Asian equities are down yet again, even in the face of a bigger-than-expected rate cut out of India
  • On the data front, the German ZEW investor index improved in April - both the current conditions and expectations components picked up nicely.

Another deja vu?

  • The 'Sell in May and go away' mantra worked so well in the past two years that it can't be ignored

The rain in Spain is not contained

Even with the ECB buying more Spanish Bonds, the problems within Spain have obviously not been solved

One dismal U.S. macro backdrop

  • It's so easy to get caught up in the high-frequency data flow that it is not difficult to lose sight of just how bad it is out there. 

But retail sales hang in

  • The consensus on March retail sales was for a 0.3% gain but instead we got +0.8% and the gains were fairly broad based
US retail_041612

April data bring on some showers

  • It's merely a diffusion index, but the New York Fed Empire Survey did disappoint in a major way

Nothing loonie here

  • Despite the pullback in global investor risk appetitie and faltering commodity prices, the Canadian dollar has managed to remain at par against its strong 'safe haven' U.S. counterpart

Getting high on yield Conference

Many readers have heard me discuss the vitures of a S.I.R.P. strategy. We continue to believe in well thought out S.I.R.P. investments and my colleague Reno Giancola and I will be discussing investment strategies and investment ideas as a conference May 31st at the Design Exchange in support of Mount Sinai Hospital. 

Great Opportunity below:

I subscribed to a Free 7 Day Trial to David Rosenberg's great Breakfast with Dave daily report so that you can piggyback on the trial. Just put in my username and password below and try it out! I have read it for years and really like the full report (the above "While You Were Sleeping" is just a minor part of the daily letter) it so see what you think. Only 3 more days on the trial but every report that's ever been issued is available by putting in my email address and Password. Regards Robert Zurrer Editor-Moneytalks.net  email - zurrermoneytalks@shaw.ca or zurrer@shaw.ca

Dear reader,

As one of David Rosenberg’s long-standing followers, we have set up a free no-commitment seven day trial with full access to all reports using the new platform. All you need to do is login using the details below:

Website: http://research.gluskinsheff.com
Email address: zurrer@shaw.ca">zurrer@shaw.ca
Password: 87417799


Should you choose to purchase a subscription, login to the Gluskin Sheff Research platform, go to My Account on the top right, click My User Profile, select Subscription Status on the left hand side menu, click Change/Upgrade Subscription, and follow the instructions to complete the upgrade.

You can also read Breakfast with Dave reports on your iPad, iPhone, PlayBook or Android device using our free Gluskin Sheff Research app. Follow the links below to download the app to your mobile devices:

iPhone/iPad Android BlackBerry PlayBook

If you have any questions, please do not hesitate to contact us at research@gluskinsheff.com">research@gluskinsheff.com.

Thank you,

Gluskin Sheff Research


Stocks & Equities

Does Another Cruel Summer Lie Ahead For Stocks?

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Posted by Eric Parnell

on Sunday, 15 April 2012 17:30

By: Eric Parnell 

The stock market has made one thing abundantly clear in the early days of the second quarter: It still cannot stand on its own at current levels without the continued support of additional stimulus from the U.S. Federal Reserve. And with the latest Fed stimulus program set to end in June, it may be shaping up to be another cruel summer for stocks.

It all began on April 3 with the release of the latest Fed minutes from the March Open Market Committee meeting. Although nothing was included or discussed that we haven't already heard from the Fed many times before over the last several years, the market decided that the key take away from the latest minutes was that no further quantitative easing would be coming from the Fed any time soon. Stocks (SPY) immediately recoiled on the news, sliding lower for the remainder of the holiday shortened trading week. Then came the disappointing employment numbers on Friday and the uneasy response by investors once the stock market reopened early this past week. All of the sudden, the additional Fed stimulus that so many had concluded was off the table merely one week earlier was all of the sudden back on once again.


403065-13343774054316201-Eric-Parnell origin


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