As a rational investor, I understand that sentiment and irrational expectations can impact the market over extended periods of time. When this happens, I focus on the longer-term picture in order to retain conviction in my positions. But sometimes the market gets so disconnected from reality that I can’t help but wonder whether a significant change in asset prices is imminent. In these instances, which I believe is happening now, I take short-term, contrarian positions. #-ad_banner-#Even if I am early to the party and lose money on the position over a few months, I am positioned to win big when… Read More

As a rational investor, I understand that sentiment and irrational expectations can impact the market over extended periods of time. When this happens, I focus on the longer-term picture in order to retain conviction in my positions. But sometimes the market gets so disconnected from reality that I can’t help but wonder whether a significant change in asset prices is imminent. In these instances, which I believe is happening now, I take short-term, contrarian positions. #-ad_banner-#Even if I am early to the party and lose money on the position over a few months, I am positioned to win big when the bubble bursts. Unlike past bubbles in the stock and real estate markets, a new bubble is emerging in the fixed-income markets.   Take My Money, Please Switzerland recently became the first country to sell 10-year Treasuries at a negative yield. In effect, investors are paying the Swiss government to hold their money for ten years and asking nothing in return. Do investors really expect rates to go nowhere for the next decade? If that were not enough to signal something terribly wrong in the world of fixed-income, then consider this. The 10-year U.S. Treasury bond yields… Read More

Many oil explorers and producers (E&P) are on the precipice right now. Years of high oil prices have led to a bonanza of land grabs and acquisitions despite premium valuations. Companies took on high levels of debt, reasoning that the revolution in U.S. production would mean cash flows could easily cover the interest. But now that oil prices have been cut in half, nearly $11.6 billion of that debt could be at risk of default. This earnings season, companies are expected to announce major changes to their capital spending plans to control the cash bleed while analysts continue… Read More

Many oil explorers and producers (E&P) are on the precipice right now. Years of high oil prices have led to a bonanza of land grabs and acquisitions despite premium valuations. Companies took on high levels of debt, reasoning that the revolution in U.S. production would mean cash flows could easily cover the interest. But now that oil prices have been cut in half, nearly $11.6 billion of that debt could be at risk of default. This earnings season, companies are expected to announce major changes to their capital spending plans to control the cash bleed while analysts continue waiting for a sign that the energy market has bottomed. All the uncertainty means high risk for investors… but also the potential for high returns for the companies that can survive until energy prices recover. #-ad_banner-#I am not naive enough to try calling a bottom in energy prices, but with this option trade, I don’t have to. In fact, today’s trade can give you the opportunity to minimize risk and amplify any potential returns, all while preserving capital if the trade doesn’t work out. Don’t Gamble With Your Money… Use Options to Minimize Risk and Preserve Capital The E&P space… Read More

In hindsight, the six-year bull market was an easy rally to predict. Valuations were very low in early 2009, and Federal Reserve policy has been remarkably accommodating. Yet the forward view may not be so rosy. Sales growth is getting harder to achieve for companies in the S&P 500. Analysts are expecting sales per share at S&P 500 companies in 2015 to decline by 1.4%, while earnings are expected to eke out 2.5% growth to $120.17 per share, according to FactSet Research. #-ad_banner-#Sales growth has not been stellar in recent years, but companies have been able to increase earnings through… Read More

In hindsight, the six-year bull market was an easy rally to predict. Valuations were very low in early 2009, and Federal Reserve policy has been remarkably accommodating. Yet the forward view may not be so rosy. Sales growth is getting harder to achieve for companies in the S&P 500. Analysts are expecting sales per share at S&P 500 companies in 2015 to decline by 1.4%, while earnings are expected to eke out 2.5% growth to $120.17 per share, according to FactSet Research. #-ad_banner-#Sales growth has not been stellar in recent years, but companies have been able to increase earnings through expense management and lower interest expense. Net margins on results over the last four quarters are at 10% for the companies in the S&P 500, well above the 8.6% average over the last ten years. It is going to be progressively more difficult to squeeze out higher earnings on cost management alone and higher interest rates could be another headwind on profit margins. This tough corporate environment is coming as the Federal Reserve inches closer to a less accommodative monetary policy. Global growth has yet to fulfill the promise of increased easing by developed nation’s central banks and U.S. firms… Read More

The decimation of oil prices has been a dominant theme for the past eight months. However, while weaker earnings out of the energy complex are weighing on overall market earnings, the collapse in oil prices has yet to really hit earnings outside the sector.  But that could be about to change. While companies like airlines and shipping providers may benefit from lower fuel prices, companies that provide ancillary services to the energy sector may soon surprise the market with lower sales.  One particularly expensive-looking company already warned investors, but no one seemed to notice. Cintas (NASDAQ:… Read More

The decimation of oil prices has been a dominant theme for the past eight months. However, while weaker earnings out of the energy complex are weighing on overall market earnings, the collapse in oil prices has yet to really hit earnings outside the sector.  But that could be about to change. While companies like airlines and shipping providers may benefit from lower fuel prices, companies that provide ancillary services to the energy sector may soon surprise the market with lower sales.  One particularly expensive-looking company already warned investors, but no one seemed to notice. Cintas (NASDAQ: CTAS) is the largest U.S.-based uniform rental provider with more than 7,700 delivery routes and 1 million business clients. Beyond a commanding domestic presence, the company has operations in Asia, Latin America and Europe. #-ad_banner-#​Revenue from the core rental business accounts for 75% of sales and 80% of profitability. While Cintas has been able to carve out a name for itself in the mature market of rental uniforms, it has struggled in its other segments — direct uniform sales and first aid, safety and fire protection services.  The attempt to diversify sales into these… Read More

Previously seen as little more than as an annoyance to corporate boards, activist investors have stepped up the heat in recent years. Backed by hedge funds and the ultra-rich investors, they are making a strong push to force companies to unlock shareholder value. #-ad_banner-#So far, these activists have been most vocal about higher cash returns to shareholders. Carl Icahn launched his historic fight with Apple, Inc. (Nasdaq: AAPL) in October 2013, calling for a $150 billion buyback. Reluctant at first, Apple has since instituted a dividend and bought back $68 billion in shares. Beyond higher cash returns, activist investors have… Read More

Previously seen as little more than as an annoyance to corporate boards, activist investors have stepped up the heat in recent years. Backed by hedge funds and the ultra-rich investors, they are making a strong push to force companies to unlock shareholder value. #-ad_banner-#So far, these activists have been most vocal about higher cash returns to shareholders. Carl Icahn launched his historic fight with Apple, Inc. (Nasdaq: AAPL) in October 2013, calling for a $150 billion buyback. Reluctant at first, Apple has since instituted a dividend and bought back $68 billion in shares. Beyond higher cash returns, activist investors have also increased their calls for spinoffs, management changes or an outright sale of the company. But a recent ruling by the Internal Revenue Service may spark a new wave of activist demands. The IRS’ moves could have a strong impact on one industry in particular, has already drawn the interest of a major activist investor. Do You Really Want To Be A Real Estate Company? The IRS ruling in question regards document storage firm Iron Mountain, Inc. (NYSE: IRM). The company was given the greenlight to convert into a real estate investment trust (REIT). Shares soon… Read More

No one seems to know what is causing the market volatility of late.  Interest rate jitters have been limiting gains for months, but recent economic news doesn’t seem to point to an imminent increase by the Federal Reserve. Geopolitical worries surrounding Greece have not really hit asset values significantly either, and global monetary policy is still supportive of growth. #-ad_banner-#Despite there being no obvious cause, market volatility has jumped since the beginning of March, and the S&P 500 is off its recent high by almost 3%.  We have been here before though. The market dove 9.9% from April through June… Read More

No one seems to know what is causing the market volatility of late.  Interest rate jitters have been limiting gains for months, but recent economic news doesn’t seem to point to an imminent increase by the Federal Reserve. Geopolitical worries surrounding Greece have not really hit asset values significantly either, and global monetary policy is still supportive of growth. #-ad_banner-#Despite there being no obvious cause, market volatility has jumped since the beginning of March, and the S&P 500 is off its recent high by almost 3%.  We have been here before though. The market dove 9.9% from April through June of 2012 before continuing its ascent. Asset prices sold off 7.4% from mid-September through mid-October of last year, as well. Both of these sell-offs started as little more than routine profit-taking and were over within a short period.  This sell-off appears no different than prior ones, with global monetary stimulus and U.S. economic growth promising to support asset prices. Stocks have soared since the end of the recession, but valuations are not nearly as high as prior peaks.  Despite strong gains in stocks since the market’s 2009 low, there’s really little reason to believe that any sell-off will accelerate into… Read More

The housing market is currently giving mixed signals. New Home sales are rising, but sales of existing homes have been disappointing. One of the key headwinds is the issue of affordability. #-ad_banner-#There are only 1.9 million homes for sale, as many potential sellers decide to keep their house off the market for now. That lack of availability is driving prices, up 7.5% over the last year. The National Association of Realtors’ Chief Economist Lawrence Yun called this an “unhealthy” price increase. Perhaps the housing recovery will merely be slow-and-steady, rather than the more robust rebound that many have been anticipating. Read More

The housing market is currently giving mixed signals. New Home sales are rising, but sales of existing homes have been disappointing. One of the key headwinds is the issue of affordability. #-ad_banner-#There are only 1.9 million homes for sale, as many potential sellers decide to keep their house off the market for now. That lack of availability is driving prices, up 7.5% over the last year. The National Association of Realtors’ Chief Economist Lawrence Yun called this an “unhealthy” price increase. Perhaps the housing recovery will merely be slow-and-steady, rather than the more robust rebound that many have been anticipating. Millennials have yet to embrace home ownership in the same way as prior generations, and weak wage growth is an impediment for buyers seeking to move to bigger homes. Rising prices and weak availability of homes for sale may mean that people decide to stay in their current home and remodel instead of looking for other options in the market. This is contributing to an aging stock of homes with roughly two-thirds of U.S. houses more than 27 years old. This could all turn out to be good news for home improvement retailers. Sales for these firms are… Read More

When it comes to the energy sector, history has a way of repeating itself.  Energy drillers purse debt-fueled growth when times are good and face a debt hangover when energy prices head south. It’s happening again. The energy sector may face roughly $11.6 billion in bond defaults, according to a recent Bloomberg News article. Understandably, that has made many equity investors leery of this slumping sector. #-ad_banner-#But has the commensurate plunge across the oil exploration and production (E&P) sector been overdone? And if so, might it  present a buying opportunity, both for investors and larger players?… Read More

When it comes to the energy sector, history has a way of repeating itself.  Energy drillers purse debt-fueled growth when times are good and face a debt hangover when energy prices head south. It’s happening again. The energy sector may face roughly $11.6 billion in bond defaults, according to a recent Bloomberg News article. Understandably, that has made many equity investors leery of this slumping sector. #-ad_banner-#But has the commensurate plunge across the oil exploration and production (E&P) sector been overdone? And if so, might it  present a buying opportunity, both for investors and larger players? The shale boom led to inflated asset values. Now, the reverse is true. The value of shale producer’s reserves have fallen more than 25% since 2013, from $18.52 per barrel to$13.60 per barrel at the end of 2014. That figure has likely fallen further in 2015. I recently wrote about how the long-term demand for oil should help rebuild pricing. As a result, companies with near-term liquidity needs, but appealing longer-term fundamentals, could now be cheap enough to attract larger buyers. Consolidation Has Commenced We may already be witnessing asset-rich firms attracting the interest of cash-rich buyers. Read More

The European Central Bank (ECB) has finally joined the global bond-buying party with its 19-month program to inject more than $1.2 trillion into the region. The program calls for the central bank’s monthly purchase of more than $60 billion of sovereign bonds along with asset-backed and agency debt.   #-ad_banner-#The new buying program could have some unforeseen consequences. Liquidity in sovereign bonds has already been a global concern, as evidenced by a 70% decrease in the amount of 10-year U.S. Treasury notes available to buy or sell over the last year. With the ECB program buying… Read More

The European Central Bank (ECB) has finally joined the global bond-buying party with its 19-month program to inject more than $1.2 trillion into the region. The program calls for the central bank’s monthly purchase of more than $60 billion of sovereign bonds along with asset-backed and agency debt.   #-ad_banner-#The new buying program could have some unforeseen consequences. Liquidity in sovereign bonds has already been a global concern, as evidenced by a 70% decrease in the amount of 10-year U.S. Treasury notes available to buy or sell over the last year. With the ECB program buying up European bonds, that same liquidity problem could hit the eurozone.   For example, a lack of liquidity in Italian bonds has already caused transaction costs to rise. In fact,  the volume of  futures contracts has surged 800% since 2009, as investors use derivatives to take a position that they can’t get in the bond market.   The new competition in bonds pushed the average yield to maturity of eurozone government debt to 0.538% in late February, the lowest since at least 1995 (when Bank of America started tracking this rate index).   Weak economic growth in Europe, coupled with… Read More

“Cord-cutter” has become the new buzzword. From Sony (NYSE: SNE) to Apple (NASDAQ: AAPL), major entertainment names are throwing their hat into the on-demand video streaming ring. The arrival of the big players has renewed fears that consumers would cut their cable cords en masse and send shares of cable content providers plummeting. While uncertainty has weighed on these stocks, the fears are overblown and have led to extremely cheap valuations on some really good assets.  Against the hype of the imminent demise of cable content companies is the fact that 85% of households still subscribe to cable. While Netflix… Read More

“Cord-cutter” has become the new buzzword. From Sony (NYSE: SNE) to Apple (NASDAQ: AAPL), major entertainment names are throwing their hat into the on-demand video streaming ring. The arrival of the big players has renewed fears that consumers would cut their cable cords en masse and send shares of cable content providers plummeting. While uncertainty has weighed on these stocks, the fears are overblown and have led to extremely cheap valuations on some really good assets.  Against the hype of the imminent demise of cable content companies is the fact that 85% of households still subscribe to cable. While Netflix (NASDAQ: NFLX) carved out a niche in this area, other providers have had a harder time convincing consumers to make the switch. Even the upcoming launch of the Apple TV subscription service is being met with some indifference. More likely than the death of cable providers will be consolidation in the industry. Companies will merge to gain negotiating leverage over the streaming service providers, allowing them to regain some control in both forms of distribution. #-ad_banner-# In fact, rumors are already building around… Read More