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Collapse, Consolidation, and Accidental Greatness

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By Alex Planes, The Motley Fool

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On this day in economic and business history …

On April 14, 2000, all but the most hopeless optimists probably sensed that the era of endless dot-com gains was finally over. That day, a four-day streak of losses became a five-day market rout as investors reacted to unexpected growth in consumer prices by selling off en masse.

The Dow Jones Industrial Average lost 616.23 points — a 5.7% plunge — narrowly avoiding a 700-point drop but nevertheless setting what was then an all-time record for losses in terms of points. The losses became so bad so quickly during the day’s trading that circuit breakers tripped at the New York Stock Exchange, leading us to wonder how much worse the drop might have been without this protection. The once red-hot Nasdaq Composite collapsed, losing more than 9% in its largest one-day drop on record, capping a week that had shaved off a full quarter of its value. Over the course of the week, investors in American stocks lost $2 trillion in total wealth.

As is often the case at the beginning of a serious bear market, some traders and pundits found it hard to believe that the crash was closer to its beginning than to its end. Brian Finnerty of C.E. Unterberg Towbin told CNN, “They’re selling the good with the bad because they can … and that’s irrational, but that’s also when a bottom is formed.” Bill Meehan of Cantor Fitzgerald said: “I think you’ll see healthier and broader advances in the market. Now is the time for optimism.”

They were, of course, very wrong. The stock slide continued for more than two years, reducing the Dow’s value by nearly 30% more and absolutely destroying the Nasdaq, which collapsed another 66% before finding its real bottom. The Dow eventually recovered, but the Nasdaq never did — its April 14, 2000, closing value of 3,321.17 remains higher than any closing value reached in the subsequent decade.

A patented breakfast product
Kellogg can trace its origins to 1894, when Dr. John Harvey Kellogg and Will Keith Kellogg invented corn flakes by accident. That invention gained legal legitimacy on April 14, 1896, when the U.S. Patent Office granted Dr. Kellogg a patent for the new “flaked cereal.” For several years, the two brothers tried to market the product together under the banner of the Sanitas Nut Food Company, which defended the corn-flake patent vigorously against imitators.

Dr. Kellogg formed Sanitas — possibly named after the Battle Creek Sanitarium in Michigan, where corn flakes were invented — in 1899 and brought brother Will on to help manage the business, which would sell the cereal through mail order. A number of copycats sprang up, so numerous that more than 40 factories were thought to be operating near the Battle Creek Sanitarium making similar breakfast cereals by 1902. In 1903, the

From: http://www.dailyfinance.com/2013/04/14/collapse-consolidation-and-accidental-greatness/

Business, Finance, Occupation & Industry

This Is the Real Danger of the Irrational Exuberance Surrounding Bitcoins

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By Sean Williams, The Motley Fool

Tom Coburn Official GOP senator would broaden gun checks

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If you’re anything of a long-term investor, someone who’s studied economics, or simply a fan of finance, you’ve probably looked on with disdain as the electronic currency known as Bitcoins has exploded from just $20 per fictitious token to a high of $266 in less than two months.

Source: Casascius, wikimedia.commons 

The currency, if it can even be called that, was described in good detail by my colleague Alex Planes earlier this week. Its value is derived not from any sort of monetary backing — no government or monetary body recognizes a Bitcoin as an acceptable form of currency — but from the acceptance of other retailers and individuals who are willing to assign a monetary value to a Bitcoin and use that figure to exchange goods and services. Its value is also derived from its designed scarcity — there are only a fixed amount of bitcoins to go around.

As you might have assumed, as someone with a penchant for thinking long-term and having studied economics in college, I think there’s a clear and present danger investing in something that essentially doesn’t exist beyond cyberspace. However, the truly scary part of Bitcoins isn’t that they aren’t backed by a government entity, but is ingrained in the fact that it’s spawning a new generation of emotional and irrational investors who will get the completely wrong impression of how “investing” works.

History tends to repeat itself
You may have come across the phrase that history tends to repeat itself; I believe this is a perfect case in point to describe the trading action in Bitcoins over the past six months.

In 1999 you could throw a dart at the newspaper, purchase the stock your dart landed on, and probably have come out a winner. Earnings, cash flow, and valuation were all placed on the back burner as the emergence of the Internet as a commerce medium was putting all of those “archaic” investment tools back in the box. The technology-driven Nasdaq Composite would eventually cross 5,000, and both Cisco Systems and Microsoft would top $500 billion in market value. Near their peaks, Cisco traded for around 120 times earnings, while Microsoft was valued at a multiple of 55. It was truly a time of emotional and irrational investing, and Wall Street encouraged it just as much as speculative traders promoted it.

This week, I came across an article from the Silicon Valley Business Journal dated March 19, 2000, just nine days after the Nasdaq’s all-time record close. In that article, it’s stated that 37 investment banks at the time had “strong buy” or “buy” rating on Cisco without a single “sell” or even “hold” rating. Furthermore, George Kelly, a Wall Street analyst who was working for Morgan Stanley Dean Witter at the time and was a player in bringing Cisco public in 1990, was quoted as saying in his defense of Cisco’s enormous P/E multiple: “A

From: http://www.dailyfinance.com/2013/04/13/this-is-the-real-danger-of-the-irrational-exuberan/

Business, Finance, Occupation & Industry

Why Citibank Is Up Big Today

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By John Grgurich, The Motley Fool

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Last week at this time, I was writing about how Citigroup and the rest of the big-four banks were tanking for no apparent reason. This week, I’m happy to report that Citi and its peers are decidedly not tanking. In fact, banks appear to be leading an overall market rally.  Here’s what we know.

The exact opposite of last week
First, let’s have a quick look at exactly where Citi, its peers, and the markets are about midway through the trading day:

  • Citi is up a big 2.43%.
  • Bank of America is up 0.65%.
  • JPMorgan Chase is up 1.36%.
  • And Wells Fargo is up 0.92%.

The markets are all in the green, too, with the Dow Jones Industrial Average up 0.86%, the S&P 500 up 1.08%, and the Nasdaq Composite up 1.68%.

The Facebook effect
Two days ago, The Wall Street Journal broke the news that Citi plans to file suit against Nasdaq OMX Group for its botched handling of last May’s Facebook initial public offering, and Citi’s share price has been on the rise ever since.

There’s no word yet on how much money the bank will ask for, but the Journal is reporting that securities firms as a group lost around $550 million total on the deal. Swiss banking giant UBS lost $356 million alone, which leaves less than $200 million for Citi and its cohorts to split.  

Based on this, we know that whatever the superbank eventually claims in the filing won’t be a game-changing amount of money. But investors — like myself — are probably just happy to see that the sometimes languid and unfocused bank is stepping up to try to right a wrong and recover monies it feels are justly due.

Speaking of game changers, thank you to CEO Michael Corbat for going to bat for Citi’s bottom line and for investors.

Of course, in addition to the Facebook news, Citi is also up likely just because the markets are up. The stock market, as we know, moves because of human psychology as much as for any other reason. There’s a reason we have terms like “vicious cycle,” as well as its flip side, “virtuous circle.”

But Foolish investors like yourself know you’re in the stock market for long term, and you know you don’t need to check on your share prices everyday. In the short term, the markets may move up and down, but over weeks, months, and years, so long as the companies you’re invested in have strong fundamentals, you know your money is in the right place.

Looking for in-depth analysis on Citi?
If so, look no further than our new premium report on the superbank. In it Matt Koppenheffer — The Motley Fool’s senior banking analyst — will fill you in on both reasons to buy and reasons to sell Citigroup.

He’ll also clue you in on what areas investors need to watch going forward. For instant access to Matt’s personal take on Citi, simply click here

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

How Bank of America Helped Send the Dow Higher

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By Dan Caplinger, The Motley Fool

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First-quarter earnings reports are finally here, but before the first release of the official earnings season came this afternoon, the Dow Jones Industrials managed to start things off on an optimistic note, rising 48 points even as many analysts fear that any slowdown in earnings could trigger a reversal in the stock market‘s impressive gains over the past four years. Broader market measures rose more substantially, with gains of more than half a percent for the S&P 500 and Nasdaq Composite.

The biggest percentage gainer in the Dow was Bank of America , which climbed 2%. Despite having acquired a terrible image from its needing bailout support and its attempts to raise income in the aftermath of the financial crisis, B of A has been reworking its image, and Fool contributor Amanda Alix points to “super-branches” with luxury accoutrements as well as more advanced ATM technology as evidence that the bank has learned from its past missteps.

Elsewhere in the financial sector, AIG climbed nearly 4% to a 52-week high as the company seeks to block a potential shareholder derivative lawsuit that former chairman and CEO Hank Greenberg wants to file against the U.S. government. Greenberg seeks to argue that the terms of the government‘s bailout of the insurance company were unfair to AIG, but AIG correctly anticipates a huge potential outcry from outraged taxpayers if such a suit were to go forward. Meanwhile, AIG also completed the sale of its American Fuji Fire and Marine subsidiary to White Mountains Insurance, with the deal that was announced last year having had to wait for regulatory approval before proceeding. AIG has done a good job of recovering from the financial crisis by concentrating on its core business, and investors who got in after the financial meltdown have reaped the benefits.

Finally, Weatherford International rose nearly 4% on the heels of General Electric‘s deal to buy Lufkin Industries announced this morning. As a fellow oil-services provider, Weatherford is rising on speculation that merger and acquisition activity in the space could rise as a result of the GE acquisition. Yet GE almost certainly wouldn’t be interested after having bought Lufkin, and with Weatherford’s market cap of nearly $10 billion, it would take a similarly big buyer to pull off a buyout of that size. It’s hard to see Weatherford as an acquisition candidate even after the Lufkin buyout.

Today’s gains add to the huge returns that investors have earned as Bank of America’s stock doubled in 2012. Are there more gains yet to come? With significant challenges still ahead, it’s critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool’s premium research report on B of A, analysts Anand Chokkavelu, CFA, and Matt Koppenheffer, financials bureau chief, lift the veil on the bank’s operations, including detailing three reasons to buy and three reasons to sell. Click …read more

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

The Nasdaq's 5 Most Hated Stocks

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By Sean Williams, The Motley Fool

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Although the Nasdaq Composite is the only major U.S. index that’s nowhere near its all-time high, it still turned in an impressive gain of 8.2% for the quarter. Gains were broad-based, with everything from technology and health care to energy and financials helping the index.

However, the optimism among investors wasn’t shared by some. Weakening consumer-confidence figures in recent months would suggest that consumers are more cautious about the overall economy — a perfect scenario to persuade short-sellers to dig in their claws. Here’s a look at the five most hated stocks in the Nasdaq Composite that have drawn the ire of short-sellers:

Company

Short Interest As a % of Shares Outstanding

Coinstar

50.12%

Spectrum Pharmaceuticals

44.47%

Questcor Pharmaceuticals

43.10%

Uni-Pixel

42.73%

SodaStream International

39.96%

Source: S&P Capital IQ.

As we’ve done previously, I suggest we look at the various reasons why short-sellers may have homed in on these five companies and decide whether the pessimism is justified.

Coinstar
Why are investors shorting Coinstar?

  • The reason short-sellers have barreled into Coinstar has to do with the company’s reliance on the DVD-rental business and the expectation that its sales will shrink in a similar fashion to Netflix‘s DVD sales. Coinstar’s most recent quarterly profit blew past estimates, and it did forecast revenue growth of 12% at the midpoint for its current fiscal year, but the proliferation of streaming services is expected to take a big bite out of Coinstar’s margins.

Is this short interest deserved?

  • Having 50% of the outstanding shares being held short as a short-squeeze is a genuine concern, but I can definitely understand the pessimism surrounding Coinstar. If Coinstar’s margins are anything like Netflix’s, then its DVD business generates double the margins that the streaming business will in a like-for-like comparison. This means Coinstar probably has a few years of growing pains in its immediate future.

Spectrum Pharmaceuticals
Why are investors shorting Spectrum Pharmaceuticals?

  • Short-sellers had already been skeptical of Spectrum Pharmaceuticals‘ palliative metastatic colorectal cancer treatment, Fusilev, long before the stock nosedived in March. Generic competition for the drug was available, but shortages of those generics had encouraged Spectrum’s management to expect sales growth in 2013. That turned out to be all for naught, as Sagent Pharmaceuticals stepped up to fill the generic void and Spectrum lowered its full-year sales forecast by 40% to 47% at the top and bottom end. 

Is this short interest deserved?

  • As much as I’d like to think that traders overreacted to Spectrum’s warning, the massive reduction in Fusilev sales is going to push the company into the red in 2013 and may it keep it there for some time. Folotyn and Zevalin could help move Spectrum back to a profit as soon as next year, but the uncertainties surrounding Fusilev, by far its biggest revenue generator, are too great to suggest buying in even here.

Questcor Pharmaceuticals
Why are investors shorting …read more

Source: FULL ARTICLE at DailyFinance

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S&P 500 Trades Above Record Closing High

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By The Huffington Post News Editors

NEW YORK (Reuters) – The benchmark S&P 500 index briefly traded above its record closing high on Thursday, setting the stage for a record close.

The Dow Jones industrial average rose 27.89 points or 0.19 percent, to 14,554.05, the S&P 500 gained 1.84 points or 0.12 percent, to 1,564.69 and the Nasdaq Composite added 2.52 points or 0.08 percent, to 3,259.04.

The benchmark topped at 1,565.40. The record closing high on the S&P is 1,565.15, set Oct. 9, 2007. Its record intraday high is 1,576.09, set two days later.

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Source: FULL ARTICLE at Huffington Post

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Is This the Next Investing Bubble?

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By Brian Orelli and Max Macaluso, Ph.D., The Motley Fool

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With the Nasdaq Biotechnology Index hitting record highs, Motley Fool health care analyst Max Macaluso and Fool contributor Brian Orelli sat down to chat about whether we’re in a biotech bubble. Their conversation follows:

Max Macaluso: So, Brian, generalist investors love looking at indexes — like the Dow Jones Industrial Average, S&P 500, or Nasdaq Composite — to feel the pulse of the broader market. It’s important to stay in tune with how the overall market is performing, but we both focus on the biotech sector. How can biotech investors get a quick snapshot of how stocks in this industry are performing?

Brian Orelli: There are a couple of biotech indexes: the AMEX Biotech index (^BTK) and the Nasdaq Biotechnology Index (^NBI). And then there are some ETFs that track those funds or another basket of companies they’ve created, the SPDR S&P Biotech ETF (XBI), iShares NASDAQ Biotechnology Fund (IBB), and First Trust NYSE Arca Biotechnology Index Fund (FBT) for example.

I think most people follow the NBI or the iShares ETF that tracks it.

Macaluso: The Dow Jones Industrial Average is hovering near an all-time high. Is the NBI also hitting record highs?

Orelli: It just hit a record high, but we have to go further back than 2007 — the last time the Dow was at an all-time high. The NBI was at this level back in 2000. Like the dot-com bubble, the biotech bubble burst, and it’s taken us this long to recover.

Macaluso: You’re drawing an eerie parallel here… do you think we’re in another biotech bubble right now?

Orelli: I don’t think we’re in a bubble. I was still in grad school during the last one, so I wasn’t covering the sector as closely as I do now, but I remember the euphoria for biotech. In contrast, I don’t think valuations are over the top today.

Keep in mind that overall value should go up over time. Companies are pumping billions of dollars into R&D. That should be creating more valuable companies. If it isn’t, we have a problem.

Macaluso: So if valuations across the industry aren’t inflated at the moment, what’s behind the biotech industry’s incredible run lately?

Orelli: The index has run up in large part because of a couple of key components that make up a large portion of the index. Regeneron Pharmaceuticals for instance is over 8% of the index. Its macular degeneration drug, Eylea, has been selling better than investors — and the company for that matter — had expected. Shares are up over 50% over the last year. Gilead Sciences has almost doubled over the last year as investors have high hopes for its hepatitis C franchise.

That’s the thing about indexes. There are 119 companies in the NBI. Euphoria for all the little guys can move the index, but so can monster moves by a few of the big companies. Those might be overvalued now — it depends on whether Regeneron can develop more drugs and, for Gilead, whether …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Wall Street Watch: Krispy Kreme, Costco and Vera Bradley

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By Rick Aristotle Munarriz

Krispy Kreme

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From the country’s leading warehouse club checking in with its latest quarter financials to a highly anticipated video game hoping to breathe new life into the moribund gaming industry, there will be plenty of news waiting to break in the coming days. Let’s go over some of the items that will help shape the week that lies ahead on Wall Street.

1. Searching for More New Highs: It took a long time, but the Dow Jones Industrial Average finally smashed through the ceiling to hit a series of new all-time highs last week.

The other exchanges weren’t as fortunate. The tech-centric Nasdaq Composite is still far from its dot-com bubble peak. The S&P 500, on the other hand, kicks off the week less than 2 percent away from overtaking its all-time high set in 2007.

We still can’t lose sight of the Dow itself. It may have hit a fresh high, but investors will want to see if the favorable momentum carries the 30-stock gauge higher.

Yes, it’s a bit of a surprise. When a deal wasn’t finalized at the end of February to hold off the sequester many investors were bracing for a selloff. Didn’t we go through this scenario with the fiscal cliff in December? The market rallied after a deal was reached. It didn’t happen this time, but faith in Corporate America remains strong.

2. Time to Make the Doughnuts: Fans of Krispy Kreme (KKD) are drawn like flies to the “Hot Doughnuts Now” neon sign when it’s glowing. Krispy Kreme stores turn the signs on as the signature glazed treats roll off the line.

Investors are also hoping that the investing in the doughnut maker will be just as tasty.

It’s not just the dough in the doughnuts rising these days. The stock is trading near an eight-year high as we head into the treats maker’s quarterly report on Thursday. Analysts see profitability doubling when it reports.

Krispy Kreme may have high expectations to live up to, but it has been able to easily surpass Wall Street profit targets over the past three quarters.

3. Game On for Activision Blizzard: There haven’t been a lot of reasons to cheer for the video game industry these days, and this isn’t a segue to discuss the implications of children being exposed to violent video games.

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The gaming industry is in a financial funk, and anyone that has seen sales of hardware and software sputter over the past three years knows that things just aren’t right.

It’s against this challenging backdrop that Activision Blizzard (ATVI) is putting out “Starcraft II: Heart of the Swarm” on Tuesday.

It’s Activision Blizzard‘s first expansion pack for the Starcraft II PC game. The add-on tacks on 30 new missions and several game-play enhancements. Activision Blizzard hopes that diehard gamers won’t let …read more
Source: FULL ARTICLE at DailyFinance

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The Death of the Dot-Com Era and the Long Fall of the Nasdaq

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By Alex Planes, The Motley Fool

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On this day in economic and financial history …

The Nasdaq Composite reached its all-time high on March 10, 2000, only a day after breaking the 5,000-point barrier. It was a positive day by only the slimmest of margins, as the tech-heavy index tacked on only 1.78 points to close at 5,048.64. At the same time, the Dow Jones Industrial Average , which was already 15% lower than its mid-January peak, fell further as its component drugmakers and financials shed value over fears of higher interest rates. It was a highly symbolic day, according to CNNMoney, as the Nasdaq held above 5,000 while the Dow sank beneath the 10,000-point level for only the fourth time since the previous April.

The Nasdaq’s peak became the ultimate investing cautionary tale in later years, as swarms of pundits emerged to say “I told you so!” Where were they when the bubble was inflating to dangerous levels? Dot-com analysts pointed to “momentum” and “insatiable demand” without considering the financial fundamentals of the Nasdaq’s many bubbly stocks. One of these analysts simply said that “if you’re an astute observer, your portfolio will reflect what’s new and exciting and dynamic.” Everyone was buying trendy stocks because everyone was buying trendy stocks. It was circular logic at its finest.

A book titled Dow 100,000 had been published only half a year before the Nasdaq’s peak, and it became widely mocked after the bust for its wide-eyed optimism. Federal Reserve Chairman Alan Greenspan, having apparently forgotten his 1996 pronouncement that the market suffered from “irrational exuberance,” noted on March 10 that CEOs Jack Welch and Lou Gerstner of economic bellwethers General Electric and IBM were both enraptured by the market‘s rise. Greenspan quoted the two executives as believing it was a “true revolution” and that “they have seen nothing like this in their experience.”

That revolution sputtered out once investors realized that fundamentals simply couldn’t support their optimism, and the endless economic expansion of the ’90s wasn’t so endless after all. The Nasdaq’s P/E was well into triple-digit territory in the spring of 2000, aping a similar valuation bubble that blew Japan’s Nikkei index to the moon in the 1980s. And just as the Nikkei fell for a generation, the Nasdaq has also been looking up at March 10, 2000, ever since. A decade after that peak, the Nasdaq had lost 63% with inflation taken into account, compared with a real decline of 28% in the Dow over the same time frame. GE and IBM, which both set all-time marks near the Nasdaq’s peak, have spent more than a decade struggling to reclaim those levels. Still, they’ve done better than many Nasdaq stocks. A fifth of 1999’s newly public companies fell off the Nasdaq completely by the end of 2000, and half of the rest had lost more than half of …read more
Source: FULL ARTICLE at DailyFinance